The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments will destabilize the market. However, this criticism is misdirected, as the risk is not inherent to the perpetual futures 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 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 occurred was a result of the risk transmission mechanism, which is often the result of venue choices, such as a manipulable index and auto-deleveraging. These features are not inherent to perpetual futures. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built.
Regulatory requirements are necessary to secure the baseline, including segregated funds, a registered clearing entity, and supervisor oversight. 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 may not be suitable as a replacement for regulated futures due to their lack of term structure and basis risk. However, institutions are not using perpetuals as a replacement for dated futures, but rather as a tool for delta hedging, where liquidity is more important than term structure.
The liquidity edge of perpetuals is structural, drawn in by retail flow, and this is the overlooked prize in bringing perpetuals onshore. The debate about perpetuals is not about their inherent risk, but about how a venue handles defaults and contains systemic risk. The question is not 'are perpetuals dangerous?' but 'when the market is under stress, how does a venue handle a default?' Regulated clearing has established the standard for decades, and this is 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 one 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.