The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, but this criticism is misdirected. The true source of risk lies not in the contract itself, but in the design of the trading venue, including factors such as leverage caps, margin rules, and default management. The risk of systemic events is not inherent to perpetual contracts, but rather a result of the venue's choices. The recent episodes of deleveraging in the crypto market, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages.
However, it is the liquidation cascade, often triggered by venue choices such as manipulable indexes and auto-deleveraging, that turns a sell-off into a systemic event. Regulatory requirements, such as segregated funds and registered clearing entities, are necessary to secure the baseline, but the real question is how a given venue handles defaults under stress. Institutions may not want perpetuals as a replacement for regulated futures, but they can use them to hedge delta exposure, taking advantage of the liquidity they provide. The design of perpetuals draws in retail flow, concentrating liquidity and creating a deep, durable pool of liquidity that institutions can use safely with proper default management.
The key to containing systemic risk is not to eliminate perpetuals, but to ensure that venues handle defaults in a way that does not transmit risk to the broader market. By meeting this standard, perpetuals can become a valuable tool for institutions, rather than a source of systemic risk.