The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk due to their potential for high-leverage trading. However, this criticism is misdirected, as the risk is inherent to the venue's design, not the contract.
The true risk factors include leverage caps, margin rules, funding design, and default management, which are not inherent to a no-expiry contract. Recent deleveraging episodes in crypto have been caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The key factor that turns a sell-off into a systemic event is the risk transmission mechanism, typically a liquidation cascade. This cascade is exacerbated by venue choices, such as a manipulable index and auto-deleveraging, which are not features of perpetuals.
The real question is how a given venue is built and whether it can handle defaults under stress. Regulatory requirements are necessary to secure the baseline, including segregated funds and a registered clearing entity.
The way a venue handles a default under stress is a separate choice that varies even within regulated markets. A sharper objection to perpetuals is that institutions may not want them, as they are speculative and lack term structure, making them imperfect substitutes for regulated futures. However, institutions use perpetuals to hedge delta, not as a replacement for dated futures, because they offer liquidity. The liquidity edge of perpetuals is structural, drawn in by retail flow, and provides a deep, durable pool of liquidity for hedging desks.
The debate around perpetuals is not about their inherent risk but about how venues handle defaults. Regulated clearing has established a standard for decades, which is also the standard that Bullish is building toward. A well-designed venue can contain failures and prevent market-wide cascades, making perpetuals a viable infrastructure for institutions.