The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, but the criticism is misplaced. The risk is not inherent to the contract itself, but rather a result of the venue's design, including leverage caps, margin rules, and default management. The real question is not whether perpetuals belong in regulated markets, but how a given venue is constructed to mitigate risk.
Regulatory requirements, such as segregated funds and registered clearing entities, are essential, but the key to containing systemic risk lies in the venue's ability to handle defaults and liquidations. The debate surrounding perpetuals is not about their inherent risk, but about how institutions can safely utilize them.
The liquidity that perpetuals provide is a valuable asset for hedging desks, and with proper default management, institutions can tap into this liquidity without exposing themselves to excessive risk. The focus should be on creating a venue that can contain failures, rather than transmitting them, and it is the design of the venue that will ultimately determine the safety and efficacy of perpetual futures.