The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics arguing that these high-leverage instruments will import risk into the market. However, this critique is misdirected, as the risk is not inherent to the perpetual futures contract, but rather a result of the venue's design, including leverage limits, margin rules, index construction, and default handling. The real issue is not whether perpetual futures belong in regulated markets, but how a given venue is built to mitigate risk.
Regulatory requirements, such as segregated funds and a registered clearing entity, are essential to establishing a baseline level of security. However, the way a venue handles defaults under stress is a separate choice, and it varies even within regulated markets.
A more significant concern is that institutions may not want perpetual futures at all, as they may be seen as speculative rather than a replacement for regulated futures. Nevertheless, institutions are using perpetual futures to hedge delta, not as a substitute for dated futures, but because they offer liquidity.
The liquidity edge of perpetual futures is structural, drawn in by retail flow, and this is the overlooked prize in bringing perpetual futures onshore. The question is not whether perpetual futures are dangerous, but how a venue handles defaults 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, the chain that turns one blown-out account into a market-wide cascade can be broken, and perpetual futures can become infrastructure that institutions can use safely.