The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk due to their potential for high-leverage and retail-driven trading. However, this critique is misguided, as the true source of systemic risk lies in the design of the trading venue, including factors such as leverage caps, margin requirements, and default management. The risk is not inherent to the perpetual futures contract itself, but rather a result of the choices made by the venue. The concern is not entirely unfounded, as past deleveraging episodes in the crypto market have been triggered by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages.
The key to mitigating systemic risk is not to ban perpetual futures, but to ensure that trading venues are designed with robust risk management systems, including segregated funds, registered clearing entities, and regulatory oversight. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built to handle defaults and other stress events. While some critics argue that institutions may not want perpetuals due to their limitations as a replacement for regulated futures, the reality is that many institutions use perpetuals to hedge delta exposure, taking advantage of their liquidity and continuous tradability.
The liquidity edge of perpetuals is structural, drawing in retail flow and concentrating liquidity in these instruments. By bringing perpetuals onshore with institutional-grade default management, regulated clearinghouses can provide a safe and reliable platform for institutions to access this liquidity.
The debate over perpetuals is not about their inherent risk, but about how venues handle defaults and stress events. Regulated clearing has established a standard for decades, which is also the standard that Bullish is building towards.
By containing defaults at their source and providing a pre-funded guaranty fund, regulated clearinghouses can break the chain of risk transmission and prevent market-wide cascades. This approach can turn perpetuals into a valuable infrastructure for institutions, rather than a systemic risk.