The introduction of perpetual futures to regulated markets has sparked concerns about systemic risk. However, the risk is not inherent to the contract itself, but rather a result of the venue's design. The venue's choices, such as leverage caps, margin, funding design, and default management, determine the level of risk.
The recent crypto market deleveraging episodes, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade, which is often triggered by forced liquidations, can lead to a systemic event.
Nevertheless, this is not a feature of perpetuals, but rather a result of the venue's design. The key to mitigating systemic risk lies in the implementation of regulatory requirements, such as segregated funds, a registered clearing entity, and a supervisor's oversight. The way a venue handles defaults under stress is also crucial. Some critics argue that institutions may not want perpetuals, citing limited appetite and the fact that they are not a replacement for regulated futures.
However, institutions are using perpetuals to hedge delta, taking advantage of the liquidity they provide. The liquidity edge of perpetuals is structural, drawn in by retail flow, and can be a valuable asset for institutions. The debate surrounding perpetuals is not about their inherent risk, but about the design of the venue and the ability to handle defaults safely. Regulated clearing has established a standard for decades, and Bullish is working towards this standard.
By implementing a clearing model that starts with the defaulter and has a pre-funded guaranty fund, the risk of a market-wide cascade can be mitigated. This approach breaks the chain that turns a blown-out account into a systemic event, making perpetuals a valuable infrastructure for institutions.