The introduction of perpetual futures to regulated markets has sparked intense debate, with critics warning of the potential for systemic risk due to high-leverage trading. However, this critique is misdirected, as the risk is inherent to the venue's design, not the contract itself. The venue's choices, such as leverage caps, margin rules, and default management, are the primary factors contributing to systemic risk.
The recent deleveraging episodes 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. The liquidation cascade, which is often triggered by forced liquidations, is a key factor in turning a sell-off into a systemic event. However, this is not a feature of perpetual futures, but rather a result of poor venue design.
The real question is not whether perpetuals belong in regulated markets, but how a given venue is built and managed. Regulatory requirements, such as segregated funds and a registered clearing entity, are essential for securing the baseline. However, the way a venue handles defaults under stress is a separate choice that varies even within regulated markets. A more significant concern is that institutions may not want perpetuals at all, as they are often seen as speculative rather than a replacement for regulated futures.
However, this is not how institutions use perpetuals. Many institutions use perpetuals to hedge delta, not as a substitute for dated futures, but because they offer liquidity. The liquidity edge of perpetuals is structural, drawn in by retail traders who prefer the continuous tradability of these instruments.
The design that attracts this flow concentrates liquidity in perpetuals, making them the deepest and most continuously tradable delta-one instruments available. The overlooked prize in bringing perpetuals onshore is a deep, durable pool of liquidity in the instruments that hedging desks want. 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 through auto-deleveraging.
In contrast, the clearing model starts with the defaulter, whose own margin and fund contribution absorb the first loss. The position is worked off through the order book or auctioned to other clearing members, with a pre-funded guaranty fund sized to regulated clearinghouse standards. This approach breaks the chain that turns one blown-out account into a market-wide cascade, containing the failure rather than transmitting it.
By meeting this standard, perpetuals can become infrastructure that institutions can use safely.