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 is misdirected, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The real question is how a given venue is constructed, including its leverage caps, margin rules, and default management. Regulatory requirements, such as segregated funds and a registered clearing entity, are essential to mitigate risk, but the way a venue handles defaults under stress is a separate choice.
The debate surrounding perpetual futures is not about whether they belong in regulated markets, but about how a venue is built to manage risk. Institutions may not want perpetuals as a replacement for regulated futures, but they can use them to hedge delta, taking advantage of their liquidity. The liquidity edge of perpetuals is structural, drawn in by retail flow, and can be safely utilized by institutions with proper default management.
The key is not whether perpetuals are dangerous, but how a venue handles defaults when the market is under stress. Regulated clearing has established a standard for decades, and it is the standard that Bullish is building towards. By containing defaults at their source, rather than transmitting them to the market, perpetuals can become a safe and useful tool for institutions.