The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk due to their potential for high-leverage trading. However, this criticism is misplaced, as the risk is inherent to the venue's design, including leverage limits, margin rules, and default handling, rather than the contracts themselves. The real question is how a venue is constructed, with regulatory requirements providing a baseline for security, and the handling of defaults under stress being a critical factor.
While some argue that institutions may not want perpetuals, they are actually used by many institutions for delta hedging due to their liquidity, which is a key advantage. The design of perpetuals draws in retail flow, concentrating liquidity and creating a deep, durable pool of liquidity that institutions can utilize safely with proper default management. The debate surrounding perpetuals is not about their inherent danger, but rather how venues handle defaults during times of market stress.
Regulated clearing has established a standard for handling defaults, and it is this standard that allows institutions to use perpetuals safely, breaking the chain of risk that can lead to market-wide cascades.