The introduction of perpetual futures into regulated markets has sparked a serious debate, with critics warning of the potential for systemic risk due to high-leverage, retail-driven instruments. However, this critique is misdirected, as the risk inherent in a derivatives market is a function of the venue on which the perpetuals are traded, rather than the contract itself.
The actual risk is determined by venue choices, including leverage caps, margin requirements, funding design, and default management, none of which are inherent to a no-expiry contract. The concern is not unfounded, as past deleveraging episodes in the crypto market have been triggered by various factors, including macro shocks, stablecoin de-pegs, exchange outages, and oracle failures, which can lead to a liquidation cascade. This cascade is often violent due to venue choices, such as a manipulable index that liquidates on false prices and auto-deleveraging that claws back profitable trades to cover a shortfall, neither of which is a feature of perpetuals. The real question is not whether perpetuals belong in regulated markets, but rather how a given venue is designed.
Regulatory requirements are necessary to establish a baseline, including segregated funds, a registered clearing entity, and oversight, but how a venue handles a default under stress is a separate choice that varies even within the regulated perimeter. A more valid objection is that institutions may not want perpetuals at all, as they are often seen as speculative rather than a replacement for regulated futures, due to their lack of term structure and basis risk.
However, this is not how institutions use perpetuals, as they are often used to hedge delta, and the liquidity they provide is more important than term structure. Many of the institutions trading options on the Bullish Exchange use perpetuals to hedge delta, not as a stand-in for dated futures, but because that is where the liquidity is.
The liquidity edge of perpetuals is structural, as retail traders are drawn to them due to their no-expiry and continuously tradable nature, concentrating liquidity in perpetuals. This overlooked benefit of bringing perpetuals onshore is the creation of a deep, durable pool of liquidity in the instruments a hedging desk wants. The two halves of the debate are one, as 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 same thing that contains the systemic risk the critics fear.
The question was never 'are perpetuals dangerous?' but rather 'when the market is under stress, how does a venue handle a default?' Regulated clearing has established the standard for decades, which is also the standard Bullish is building toward, having filed with the CFTC to operate as a regulated contract market and clearinghouse. When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses, but the clearing model works differently, starting with the defaulter, whose own margin and fund contribution absorb the first loss, and then working off the position through the order book or auctioning it to other clearing members, with a pre-funded guaranty fund sized to regulated clearinghouse standards. This approach breaks the chain that turns one blown-out account into a market-wide cascade, containing the failure at its source rather than transmitting it, and thus reducing systemic risk.