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 trading venue, not the contracts. The venue's design, including leverage caps, margin rules, and default management, is the primary factor in determining systemic risk.
The recent crypto market deleveraging episodes, such as the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages, rather than the perpetual futures contracts themselves. The key to mitigating systemic risk lies in the venue's ability to handle defaults and liquidations, rather than the contracts. Regulatory requirements, such as segregated funds and registered clearing entities, are essential in securing a baseline level of safety. The real question is not whether perpetuals belong in regulated markets, but how a given venue is designed to handle risk.
Institutional appetite for perpetuals may be limited, but they can be a useful tool for hedging delta exposure, particularly in markets with limited liquidity. The liquidity edge of perpetuals is structural, driven by retail demand for continuously tradable contracts. By providing institutional-grade default management, venues can enable institutions to safely utilize this liquidity.
The debate surrounding perpetuals is not about their inherent risk, but about the design of the trading venue and its ability to contain and manage risk. Regulated clearing has established a standard for decades, and venues that adhere to this standard can provide a safe and reliable platform for institutions to trade perpetuals.