The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, with critics warning that these high-leverage instruments could destabilize the market. However, this critique is misplaced, as the risk is not inherent to the perpetual futures contract itself, but rather a result of the venue's design.
The venue's choices, such as leverage caps, margin rules, and default management, are the primary factors that determine the level of systemic risk. The recent deleveraging episodes in the crypto market, including the October 2025 cascade, were caused by a combination of macro shocks, stablecoin de-pegs, exchange outages, oracle failures, over-leverage, and thin liquidity. The liquidation cascade that ensued was exacerbated by venue choices, such as manipulable indexes and auto-deleveraging, which are not inherent features of perpetual futures.
The real question is not whether perpetuals belong in regulated markets, but rather how a given venue is designed to handle risk. Regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are essential for establishing a baseline level of security. However, the way a venue handles defaults under stress is a separate choice that can vary even within regulated markets.
A more significant concern is whether institutions actually want to use perpetual futures. A recent JPMorgan note found that institutions have limited appetite for perpetuals, viewing them as speculative rather than a replacement for regulated futures.
This is because perpetuals lack a term structure and have basis risk, making them imperfect substitutes for dated futures. However, institutions are not using perpetuals as a replacement for dated futures, but rather as a tool for hedging delta, where liquidity is more important than term structure. Many of the institutions trading options on the Bullish Exchange use perpetuals to hedge their directional exposure to the underlying price, taking advantage of the liquidity that perpetuals provide.
The design of perpetuals, which includes no expiry, no roll, and continuous tradability, draws in retail flow and concentrates liquidity in these instruments. This liquidity edge is structural and provides a deep, durable pool of liquidity that institutions can use safely, provided they have institutional-grade default management in place. The debate over perpetuals is not about whether they are dangerous, but rather about how a venue handles defaults when the market is under stress.
Regulated clearing has established a standard for handling defaults, which is also the standard that Bullish is building towards. By containing defaults at their source, rather than transmitting them to the broader market, venues can break the chain of risk that turns a single blown-out account into a market-wide cascade. This is the key to making perpetuals a safe and useful tool for institutions, rather than a source of systemic risk.