The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage and retail involvement. However, this criticism misidentifies the source of the risk, which lies not in the perpetual contracts but in the design of the trading venue, including aspects such as leverage caps, margin rules, and default management. The risk of systemic events, such as liquidation cascades, is more closely tied to how a venue handles defaults and manages risk rather than the inherent characteristics of perpetual futures.
Recent episodes of deleveraging in crypto markets, including the 2025 cascade, highlight the complex interplay of factors that contribute to systemic risk, including macroeconomic shocks, stablecoin de-pegging, and exchange outages. The key factor that turns a sell-off into a systemic event is the mechanism of risk transmission, often facilitated by liquidation cascades.
Venue design choices, such as the use of manipulable indices and auto-deleveraging, can exacerbate this risk. The real question, therefore, is not whether perpetual futures belong in regulated markets but how these venues are designed and managed.
Regulatory requirements, including segregated funds, registered clearing entities, and oversight, are crucial for establishing a baseline of safety. However, the specific choices made by venues regarding default handling under stress can vary significantly, even within regulated environments. A more pertinent concern, separate from systemic risk, is whether institutions actually want perpetual futures. Recent analysis, such as a note from JPMorgan, suggests limited institutional appetite for perpetuals due to their speculative nature and lack of term structure, making them imperfect substitutes for regulated futures.
This critique is valid from a mechanical standpoint, as perpetuals do not offer the fixed terms and delivery that institutions often require for hedging. Nonetheless, institutions are using perpetuals, not as replacements for dated futures, but to hedge delta exposure in options markets.
The liquidity of perpetuals, partly driven by retail participation, makes them attractive for this purpose, despite their limitations. The design of perpetuals, including their continuous tradability and lack of expiry, draws in retail flow and concentrates liquidity. This liquidity edge is structural and overlooked as a significant benefit of bringing perpetuals into regulated markets.
It provides a deep, durable pool of liquidity in instruments that hedging desks need. The debate over perpetual futures thus hinges on two interconnected aspects: the existing liquidity that institutions desire, largely driven by retail, and the need for institutional-grade default management to use this liquidity safely.
The critical question is not the inherent danger of perpetuals but how a venue manages defaults under stress. Regulated clearing has set a standard for decades, which Bullish aims to meet by operating as a regulated contract market and clearinghouse.
This approach involves absorbing initial losses through the defaulter's margin and fund contribution, working off positions through the order book or auctions, and backing this process with a pre-funded guaranty fund. While this does not eliminate risk entirely, it breaks the chain of events that can turn a single default into a market-wide cascade, thereby containing systemic risk.
The design of the trading venue, rather than the perpetual futures themselves, is the true story. Chris Tyrer, President of Bullish Exchange, and Tram Doman, leading product marketing at Bullish Exchange, emphasize that Bullish has filed for designation as a Designated Contract Market and registration as a Derivatives Clearing Organization, underscoring the company's commitment to meeting these regulatory standards.