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 true risk lies in the venue's choices regarding leverage caps, margin rules, funding design, and default management. The recent crypto market deleveraging episodes, including the October 2025 cascade, were caused by a combination of factors such as macro shocks, stablecoin de-pegs, and exchange outages, rather than the perpetual futures contracts themselves. The liquidation cascade, which is often triggered by forced liquidations and thin liquidity, is a result of venue choices, including a manipulable index and auto-deleveraging. Regulatory requirements, such as segregated funds and a registered clearing entity, are necessary to secure the baseline, but the real question is how a given venue is built to handle defaults under stress. The debate surrounding perpetual futures is not about whether they belong in regulated markets, but rather about how a venue is designed to manage risk. Institutions may not want perpetuals as a replacement for regulated futures, but they can be used as a tool for delta hedging, where liquidity is more important than term structure. The liquidity edge of perpetuals is structural, drawing in retail flow and concentrating liquidity in these contracts. The overlooked prize in bringing perpetuals onshore is a deep, durable pool of liquidity in the instruments a hedging desk wants. The question is not whether perpetuals are dangerous, but rather how a venue handles a default when the market is under stress. Regulated clearing has established a standard for decades, which is also the standard that Bullish is building toward. By containing defaults at their source, rather than force-feeding them into a falling market, the chain that turns one blown-out account into a market-wide cascade can be broken, reducing systemic risk.