The introduction of perpetual futures to 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, 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 deleveraging episodes, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade, which is often triggered by forced liquidations, can lead to a systemic event.
Nevertheless, this is not an inherent feature of perpetual futures, but rather a result of venue design. The key to mitigating systemic risk lies in regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight.
A well-designed venue can contain failures, rather than transmitting them to the broader market. The debate surrounding perpetual futures should focus on venue design, rather than the contract itself. Institutions are not looking to use perpetual futures as a replacement for regulated futures, but rather as a tool for hedging delta exposure. The liquidity of perpetual futures, driven in part by retail flow, makes them an attractive option for institutions.
By bringing perpetuals onshore with institutional-grade default management, the liquidity institutions want can be made available while minimizing systemic risk. The question is not whether perpetuals are dangerous, but how a venue handles defaults under stress. Regulated clearing has established a standard for handling defaults, which is also the standard that Bullish is building towards.
By containing defaults at their source, rather than force-feeding them into a falling market, the chain of risk transmission can be broken, and perpetuals can become a valuable infrastructure for institutions.