The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments will pose a threat to the stability of the market. However, this critique is misplaced, as the risk is not inherent to the perpetual futures contract itself, but rather a result of the venue's design.
The venue's choices, such as leverage caps, margin rules, and default management, are the primary factors that contribute to systemic risk. 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, exchange outages, and oracle failures. The liquidation cascade, which is often triggered by forced liquidations, can lead to a systemic event, but this is not a feature of perpetual futures. Instead, it is the result of venue choices, such as a manipulable index and auto-deleveraging.
The real question is not whether perpetual futures belong in regulated markets, but how a given venue is built and whether it can handle a default under stress. Regulatory requirements, such as segregated funds, a registered clearing entity, and a supervisor's oversight, are necessary to secure the baseline. However, the way a venue handles a default is a separate choice, and it varies even within the regulated perimeter.
A sharper objection to perpetual futures is that institutions may not want them at all, as they are seen as speculative rather than a replacement for regulated futures. A recent JPMorgan note found that institutions have limited appetite for perpetuals, treating them as imperfect substitutes for dated futures.
However, this is not how institutions use perpetuals. Many institutions use perpetuals to hedge delta, not as a replacement for dated futures, but because they offer liquidity. Term structure is less relevant to delta hedging than liquidity, and perpetuals are often the deepest and most continuously tradable delta-one instruments available. The liquidity edge of perpetuals is structural, drawn in part by retail flow.
The design that draws this flow concentrates liquidity in perpetuals, making them a valuable tool for hedging desks. 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. 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 the standard for decades, which is also the standard that Bullish is building towards. When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses, but the clearing model works differently. It 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 that 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. The design is the key to making perpetuals a valuable tool for institutions, rather than a hazard.