The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics arguing that these high-leverage instruments will destabilize the market. However, this critique is misplaced, as the risk is not inherent to the contract itself, but rather a result of the venue's design choices, such as leverage caps, margin rules, and default management. The real issue is not whether perpetual futures belong in regulated markets, but how the venue is constructed to mitigate risk.
Regulatory requirements, such as segregated funds and oversight, are essential, but the way a venue handles defaults under stress is a separate consideration. A more significant concern is whether institutions want to use perpetual futures at all, given their limitations as a replacement for traditional futures.
Nevertheless, institutions are using perpetual futures to hedge delta, taking advantage of their liquidity, which is often deeper than that of dated futures. The key to safe usage is institutional-grade default management, which contains systemic risk. The question is not whether perpetual futures are dangerous, but how a venue handles defaults under stress.
Regulated clearing has established a standard for decades, which is also the standard that Bullish is working towards. By containing defaults at their source, rather than transmitting them to the market, the chain of risk can be broken, making perpetual futures a viable infrastructure for institutions to use.