The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics arguing that these high-leverage instruments will import risk into the market. However, this criticism is misplaced, as the risk is not inherent to the contract, but rather a result of the venue's design choices, such as leverage caps, margin rules, and default management. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built to manage risk.
Regulatory requirements are necessary to secure the baseline, but the key to containing systemic risk lies in the venue's ability to handle defaults under stress. The debate over perpetuals is often framed as a question of risk, but the real issue is one of design. Institutions may not want perpetuals as a replacement for regulated futures, but they do use them to hedge delta, and the liquidity provided by perpetuals is a valuable tool for managing risk.
The design of perpetuals draws in retail flow, which concentrates liquidity and provides a deep, durable pool of liquidity for institutions to use. The key to safely using this liquidity is institutional-grade default management, which is the same factor that contains systemic risk. The question is not whether perpetuals are dangerous, but how a venue handles defaults under stress.
Regulated clearing has established a standard for decades, and it is this standard that Bullish is building towards. By containing defaults at their source, rather than transmitting them to the market, a venue can break the chain that turns a blown-out account into a market-wide cascade, and it is this design that makes perpetuals a valuable tool for institutions.