The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, but the criticism is misplaced. The risk associated with these instruments stems not from the contracts themselves, but from the design of the trading venues. Factors such as leverage caps, margin rules, and default management play a crucial role in determining the level of 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, and exchange outages.
However, it is the liquidation cascade, often triggered by venue choices, that turns a sell-off into a systemic event. This is not an inherent feature of perpetual futures, but rather a result of how the venue is designed. The key to mitigating systemic risk lies in implementing robust venue design and regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight.
Moreover, the way a venue handles defaults under stress is critical, and this varies even within regulated markets. A more significant concern is whether institutions actually want perpetual futures, given their limitations as a replacement for regulated futures. However, institutions are using perpetual futures to hedge delta, taking advantage of their liquidity, which is often deeper than that of dated futures.
The liquidity edge of perpetual futures is structural, drawing in retail flow and concentrating liquidity. This overlooked benefit of bringing perpetuals onshore is a deep, durable pool of liquidity in the instruments that hedging desks need.
The debate surrounding perpetual futures is not about their inherent danger, but about how venues handle 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 implementing a clearing model that starts with the defaulter and works off the position through the order book or auction, and backed by a pre-funded guaranty fund, the risk of a market-wide cascade can be mitigated.
This approach breaks the chain that turns one blown-out account into a systemic event, containing the failure at its source rather than transmitting it. By meeting this standard, perpetuals can become infrastructure that institutions can use safely.