The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures to regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments could destabilize the market. However, this criticism is misplaced, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The key factors that contribute to systemic risk include leverage caps, margin rules, index construction, and default management. These elements are not inherent to perpetual futures, but rather a result of the venue's choices. The recent deleveraging episodes in the crypto market, such as the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, exchange outages, oracle failures, over-leverage, and thin liquidity. The liquidation cascade that ensued was fueled by venue choices, such as manipulable indices and auto-deleveraging, which are not features of perpetual futures. The real question is not whether perpetuals belong in regulated markets, but rather how a given venue is built. Regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are necessary to establish a baseline level of security. However, the way a venue handles defaults under stress is a separate choice that can vary even within regulated markets. A more valid concern is that institutions may not want perpetuals at all, as they may be seen as speculative rather than a replacement for regulated futures. However, this perspective overlooks the fact that institutions are using perpetuals to hedge delta, not as a substitute for dated futures, but because they offer liquidity. Many of the institutions trading options on the Bullish Exchange use perpetuals to hedge delta, and the liquidity they provide is a key factor in their appeal. The design of perpetuals, which draws in retail flow, concentrates liquidity in these instruments, making them the deepest and most continuously tradable delta-one instruments available. This liquidity edge is structural and is the overlooked prize in bringing perpetuals onshore. The two halves of the debate are one: the liquidity institutions want already exists, drawn in large part by retail, and what lets them use it safely is institutional-grade default management, which is the same thing that contains the systemic risk that critics fear. The question was never whether perpetuals are dangerous, but rather how a venue handles a default when the market is under stress. Regulated clearing has established the standard for decades, which is also the standard that Bullish is building toward. When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses through auto-deleveraging, which force-closes offsetting profitable positions at an off-market price. In contrast, the clearing model starts with the defaulter, whose own margin and fund contribution absorb the first loss, and the position is worked off through the order book or auctioned to other clearing members. Behind this sits a pre-funded guaranty fund sized to regulated clearinghouse standards, with broad loss-sharing only beyond that, and rarely. This approach breaks the chain that turns one blown-out account into a market-wide cascade, containing the failure at its source rather than transmitting it to the market. By meeting this standard, perpetuals can become infrastructure that institutions can use safely; missing it would result in the hazard that critics describe, regulated or not. The design is the key factor, not the perpetuals themselves.