The Misguided Debate Over Perpetual Futures and Systemic Risk

The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments could pose a threat to the stability of 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. The true risk lies in the venue's choices, such as leverage caps, margin rules, and default management. 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 followed was fueled by venue choices, such as a manipulable index and auto-deleveraging, which 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, such as segregated funds and a registered clearing entity, are necessary to secure the baseline. 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 perfect substitute for regulated futures. However, institutions are using perpetuals to hedge delta, not as a replacement for dated futures, but because that is where the liquidity is.

The liquidity edge of perpetuals is structural, drawn in by retail, and what lets institutions use it safely is institutional-grade default management. The question was never whether perpetuals are dangerous, but how a venue handles a default when the market is under stress.

Regulated clearing has established the standard for decades, which is also the standard that Bullish is building toward. By containing the systemic risk through institutional-grade default management, perpetuals can become a valuable tool for institutions, rather than a hazard. The design of the venue, not the contract itself, is the key to mitigating systemic risk.