The introduction of perpetual futures into 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, including leverage limits, margin rules, and default handling, rather than the contract.
The risk of systemic events is not inherent to perpetual futures, but rather a result of the venue's choices, such as manipulable indexes and auto-deleveraging. Regulatory requirements, including segregated funds and oversight, are necessary to mitigate this risk. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built to handle defaults and liquidations. Institutions may not want perpetuals as a replacement for regulated futures, but they can be used for delta hedging due to their liquidity.
The design of perpetuals draws in retail flow, concentrating liquidity and creating a deep, durable pool of liquidity. The key to safe use is institutional-grade default management, which contains systemic risk. The debate surrounding perpetuals is not about their inherent danger, but about how venues handle defaults under stress.
Regulated clearing has established a standard for decades, and Bullish is building toward this standard. By containing defaults at their source, rather than transmitting them to the market, perpetuals can become a safe and useful tool for institutions.