The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage retail trading. However, the critique is misplaced, as the risk is inherent to the venue's design, not the contract.

The venue's choices, such as leverage caps, margin rules, and default management, determine the risk. The recent crypto market deleveraging episodes, including the 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade, which is often triggered by forced liquidations, is the primary risk transmission mechanism.

This cascade is violent due to venue choices, such as manipulable indexes and auto-deleveraging, rather than the perpetual futures themselves. The real question is not whether perpetuals belong in regulated markets but how a given venue is designed.

Regulatory requirements, such as segregated funds and a registered clearing entity, are necessary to establish a baseline. How a venue handles defaults under stress is a separate choice that varies even within regulated markets. A more significant objection to perpetuals is that institutions may not want them, as they are seen as speculative and lack term structure.

However, institutions use perpetuals to hedge delta, not as a replacement for dated futures, because they offer liquidity. The liquidity edge in perpetuals is structural, drawn in by retail, and provides a deep, durable pool of liquidity for hedging desks. The debate about perpetuals is twofold: the liquidity institutions want already exists, and what lets them use it safely is institutional-grade default management.

The question is not whether perpetuals are dangerous but how a venue handles defaults under stress. Regulated clearing has established a standard for decades, which is also the standard Bullish is building toward. When a liquidation shortfall occurs, the backstop is to socialize losses through auto-deleveraging, whereas the clearing model starts with the defaulter's margin and fund contribution, followed by a pre-funded guaranty fund.

This design breaks the chain that turns a blown-out account into a market-wide cascade, containing the failure rather than transmitting it. Meeting this standard makes perpetuals infrastructure that institutions can use, while missing it poses the hazard critics describe.