The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, but the criticism is off-target. The true risk lies in the design of the trading venue, including factors such as leverage limits, margin rules, and default handling. The contract itself is not inherently risky. The issue of systemic risk is not unfounded, as past deleveraging episodes in the crypto market have been caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages.

However, the key factor that turns a sell-off into a systemic event is the risk transmission mechanism, typically a liquidation cascade. This can be mitigated by venue design choices, such as a robust index and default management. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built. Regulatory requirements are necessary to establish a baseline, including segregated funds, a registered clearing entity, and oversight.

How a venue handles defaults under stress is a separate choice that varies even within regulated markets. A more relevant concern is whether institutions want perpetuals at all. A recent JPMorgan note found limited institutional appetite for perpetuals, viewing them as speculative rather than a replacement for regulated futures.

However, this perspective overlooks the fact that institutions use perpetuals to hedge delta, not as a substitute for dated futures. The liquidity of perpetuals is a key advantage, particularly for delta hedging. The design of perpetuals draws in retail flow, concentrating liquidity in these instruments. This liquidity edge is structural and provides a deep, durable pool of liquidity that institutions can use safely with institutional-grade default management.

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, which is also the standard that Bullish is building towards. By containing defaults at their source, rather than transmitting them to the broader 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 poses systemic risk.

By meeting this standard, perpetuals can become infrastructure that institutions can use safely.