The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk due to their potential for high-leverage and retail-driven trading. However, this criticism is misplaced, as the true source of systemic risk lies in the design of the trading venue, including factors such as leverage limits, margin rules, and default handling. The risk is not inherent to the perpetual futures contract itself, but rather a result of the choices made by the venue. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built and managed.
Regulatory requirements, such as segregated funds and oversight, are necessary to establish a baseline level of security. The key to mitigating systemic risk is not the elimination of perpetuals, but rather the implementation of robust venue design and risk management practices. Institutions may not want perpetuals as a replacement for traditional futures, but they can still utilize them for delta hedging due to their liquidity. The liquidity edge of perpetuals is structural, drawing in retail flow and concentrating liquidity.
This overlooked benefit of bringing perpetuals onshore is a deep, durable pool of liquidity that can be safely utilized by institutions with proper default management. The debate surrounding perpetuals is not about their inherent danger, but about how venues handle defaults under stress. Regulated clearing has established a standard for managing defaults, and it is this standard that Bullish is working towards. By implementing a robust clearing model, venues can break the chain of risk that turns a single default into a market-wide cascade, making perpetuals a viable infrastructure for institutional use.