The introduction of perpetual futures into regulated markets has sparked a heated debate, with critics arguing that these high-leverage instruments pose a significant systemic risk. However, this critique is misplaced, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The real concern lies in the venue's choices, such as leverage caps, margin rules, and default management. The risk of systemic events, such as liquidation cascades, is not unique to perpetual futures, but rather a result of the transmission mechanism.
In crypto, this is often caused by forced liquidations, which can depress prices and trigger further liquidations. However, this is not a feature of perpetuals, but rather a result of venue choices, such as manipulable indexes and auto-deleveraging.
The real question is not whether perpetuals belong in regulated markets, but how a given venue is built. Regulatory requirements, such as segregated funds and registered clearing entities, are necessary to secure the baseline. However, the way a venue handles defaults under stress is a separate choice, and it varies even within regulated markets.
A more valid concern is that institutions may not want perpetuals at all, as they may not be suitable replacements for regulated futures. However, this is not how institutions are using perpetuals. Many institutions are using perpetuals to hedge delta, not as a replacement for dated futures, but because they offer liquidity.
The liquidity edge of perpetuals is structural, drawn in by retail flow, and this is the overlooked prize in bringing perpetuals onshore. The two halves of the debate are one: the liquidity institutions want already exists, and what lets them use it safely is institutional-grade default management.
The question was never whether perpetuals are dangerous, but 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 towards.
By containing defaults at their source, rather than force-feeding them into a falling market, perpetuals can become infrastructure that institutions can use.