The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments will destabilize the market. However, this critique is misdirected, as the risk is inherent to the venue's design, not the contract itself.
The venue's choices, such as leverage caps, margin rules, and default management, determine the level of risk. The recent crypto market crashes, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages, which triggered a liquidation cascade. This cascade was exacerbated by venue choices, such as manipulable indexes and auto-deleveraging, which are not inherent to perpetual futures. The real question is not whether perpetuals belong in regulated markets, but how a given venue is designed.
Regulatory requirements, such as segregated funds and registered clearing entities, are necessary to secure the baseline. However, the way a venue handles defaults under stress is a separate choice, and it varies even within the regulated perimeter.
A more significant objection to perpetuals is that institutions may not want them, as they are seen as speculative rather than a replacement for regulated futures. A recent JPMorgan note found limited institutional appetite for perpetuals, citing their lack of term structure and basis risk. However, this is not how institutions use perpetuals. Many institutions use perpetuals to hedge delta, not as a substitute for dated futures, but because they offer liquidity.
Term structure is less relevant to delta hedging than liquidity, and perpetuals provide the deepest, most continuously tradable delta-one instruments available. The liquidity edge of perpetuals is structural, drawn in by retail investors who are attracted to their continuous tradability.
This liquidity is the overlooked prize in bringing perpetuals onshore, providing a deep, durable pool of liquidity for hedging desks. The two halves of the debate are connected: the liquidity institutions want already exists, drawn in large part by retail, and what lets them use it safely is institutional-grade default management.
The question is not whether perpetuals are dangerous, but how a venue handles defaults when the market is under stress. Regulated clearing has established the standard for decades, which is also the standard Bullish is building toward. When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses, but the clearing model works differently. It starts with the defaulter, whose own margin and fund contribution absorb the first loss, and the position is worked off through the order book or auctioned to other clearing members.
Behind that sits a pre-funded guaranty fund sized to regulated clearinghouse standards, with broad loss-sharing only beyond that, and rarely. This approach breaks the chain that turns one blown-out account into a market-wide cascade, containing the failure rather than transmitting it. Meeting this standard makes perpetuals infrastructure that institutions can use, while missing it creates the hazard critics describe. The design of the venue is the key to mitigating systemic risk, not the perpetual futures contract itself.