The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments could destabilize the market. However, this criticism is misplaced, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The venue's choices, such as leverage caps, margin rules, and default management, are what ultimately determine the level of risk. The recent deleveraging episodes in the crypto market, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages.

The liquidation cascade that ensued was fueled 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 rather how the venue is designed to handle defaults and manage risk. Regulatory requirements, such as segregated funds and a registered clearing entity, are necessary to establish a baseline level of security.

However, the way a venue handles a default under stress is a separate choice, and it varies even within the regulated perimeter. A more valid concern is that institutions may not want perpetuals at all, as they are not a replacement for regulated futures.

A recent JPMorgan note found limited institutional appetite for perpetuals, citing their speculative nature and lack of term structure. However, this criticism misses the point, as institutions are not using perpetuals as a replacement for dated futures, but rather as a tool to hedge delta. The liquidity of perpetuals is what makes them attractive to institutions, and it is this liquidity that is the overlooked prize in bringing perpetuals onshore. The debate over perpetuals is not about their inherent risk, but rather about how venues handle defaults and manage risk.

The question is not 'are perpetuals dangerous?' but rather 'how does a venue handle a default when the market is under stress?' 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, venues can break the chain that turns a blown-out account into a market-wide cascade.

This is the difference between a venue that contains a failure and one that transmits it, and it is the transmission that is the systemic risk that critics fear.