The introduction of perpetual futures to regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments could destabilize the market. However, this critique misses the mark, as the risk is not inherent to the contract itself, but rather a result of the venue's design.

The true risk factors include leverage caps, margin rules, index construction, and default management. A closer examination of the issue reveals that the risk of systemic events is more closely tied to the venue's choices, such as the use of manipulable indexes and auto-deleveraging, rather than the perpetual futures contract.

In fact, the real question is not whether perpetuals belong in regulated markets, but how a given venue is constructed. Regulatory requirements, such as segregated funds and a registered clearing entity, are essential for securing a stable baseline. Nevertheless, the way a venue handles defaults under stress is a separate consideration, and one that can vary even within regulated markets.

A more pressing concern is whether institutions truly want perpetuals, with some arguing that they are speculative and lack the term structure and delivery of traditional futures. However, this perspective overlooks the fact that institutions are using perpetuals to hedge delta, taking advantage of their liquidity, rather than as a replacement for dated futures. The liquidity edge of perpetuals is a structural advantage, drawing in retail flow and concentrating liquidity in these instruments. This overlooked benefit of bringing perpetuals onshore is the creation of a deep, durable pool of liquidity that institutions can safely utilize.

Ultimately, the debate surrounding perpetuals is not about their inherent danger, but about how venues handle defaults during times of market stress. Regulated clearing has established a standard for managing risk, and it is this standard that Bullish is working towards, having filed with the CFTC to operate as a regulated contract market and clearinghouse. By containing defaults at their source, rather than transmitting them to the broader market, venues can break the chain of risk that turns a single default into a systemic event. This is the key to making perpetuals a safe and useful tool for institutions, rather than a hazard.

The design of the venue, not the perpetuals themselves, is the true story.