The introduction of perpetual futures to regulated markets has sparked concerns about systemic risk. However, the risk is not inherent to the contracts, but rather a result of the venue's design. The venue's choices, such as leverage caps, margin rules, and default management, determine the level of risk. The concern is not unfounded, as past deleveraging episodes have been caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages.
The key to mitigating systemic risk is to design a venue that can contain failures, rather than transmitting them. This can be achieved through regulated clearing, segregated funds, and a registered clearing entity. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built.
Institutions may not want perpetuals as a replacement for regulated futures, but they can use them to hedge delta exposure. The liquidity of perpetuals is a major draw for institutions, and it is this liquidity that can provide a safe and stable market. The debate around perpetuals is not about their inherent risk, but about how a venue handles defaults and contains systemic risk.
By meeting the standards of regulated clearing, perpetuals can become a valuable tool for institutions, rather than a systemic risk.