The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage retail trading. However, this criticism is misplaced, as the risk is inherent to the venue's design, including leverage limits, margin rules, and default handling, rather than the contract itself.
The real issue is how a venue manages risk, particularly during times of stress. The concern is not unfounded, as past deleveraging episodes in crypto have been triggered by various factors, including macro shocks, stablecoin de-pegs, and exchange outages.
The key to mitigating systemic risk is a well-designed venue with robust risk management, including segregated funds, registered clearing entities, and regulatory oversight. The question is not whether perpetuals belong in regulated markets, but rather how a venue is built to handle defaults and liquidations.
A sharper objection to perpetuals is that institutions may not want them, citing limited appetite and preferring traditional futures. However, this perspective overlooks the fact that perpetuals can be used for delta hedging, providing liquidity and execution over elegance. The liquidity edge of perpetuals is structural, drawn in by retail flow, and can be safely utilized by institutions with proper default management.
The debate surrounding perpetuals is not about their inherent danger, but rather about how a venue handles defaults and liquidations. Regulated clearing has established a standard for decades, which is also the standard that Bullish is building towards.
By containing defaults at their source, rather than transmitting them to the market, a well-designed venue can break the chain of systemic risk.