The introduction of perpetual futures to regulated markets has sparked concerns about the potential for systemic risk, particularly with regards to retail-driven, high-leverage instruments. However, this criticism is misplaced, as the actual risk stems from the design of the trading venue, including factors such as leverage caps, margin rules, and default management, rather than the perpetual futures contracts themselves. The venue's design and risk management strategies are what ultimately determine the level of systemic risk. Recent deleveraging episodes in the crypto market, such as the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages, which were exacerbated by liquidation cascades.
These cascades are more a result of venue design choices, such as manipulable indexes and auto-deleveraging, rather than the perpetual futures contracts. The key to mitigating systemic risk lies in implementing robust risk management strategies, including segregated funds, registered clearing entities, and regulatory oversight. The real question is not whether perpetual futures belong in regulated markets, but rather how a given venue is designed and managed.
Institutional appetite for perpetual futures may be limited, but this is not due to the contracts themselves, but rather their use as a hedging tool. Many institutions use perpetual futures to hedge delta exposure, taking advantage of their liquidity, rather than as a replacement for dated futures.
The liquidity of perpetual futures is a structural advantage, drawn in by retail flow, and can be a valuable tool for institutions if managed properly. The debate over perpetual futures is not about their inherent risk, but rather about how venues handle defaults and manage risk.
Regulated clearing has established a standard for managing defaults, which is also the standard that Bullish is working towards. By implementing a robust risk management framework, including a pre-funded guaranty fund and a clearing model that starts with the defaulter, venues can contain failures and prevent them from becoming market-wide cascades. This is the key to making perpetual futures a safe and useful tool for institutions.