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 criticism is misplaced, as the risk is not inherent to the contracts but rather a result of the venue's design.
The venue's choices, such as leverage limits, margin rules, and default handling, are the key factors that determine the level of risk. The recent episodes of deleveraging in the crypto market, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade, which is often triggered by forced liquidations, can lead to a systemic event, but this is not a feature of perpetual futures. Instead, it is the result of poor venue design, such as the use of manipulable indexes and auto-deleveraging mechanisms.
The real question is not whether perpetual futures belong in regulated markets but how the venue is built and managed. Regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are necessary to establish a baseline level of safety. 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 that institutions may not want perpetual futures at all, as they are not a replacement for regulated futures. A recent JPMorgan note found that institutions have limited appetite for perpetual futures, treating them as speculative rather than a replacement for regulated futures. This is correct in terms of the mechanics, as perpetual futures fall short as a substitute for dated futures due to their variable funding and basis risk. However, institutions are not using perpetual futures as a replacement for dated futures but rather as a tool to hedge delta, and they are drawn to the liquidity that perpetual futures provide.
The design of perpetual futures, which includes no expiry, no roll, and continuous tradability, concentrates liquidity and makes them the deepest and most continuously tradable delta-one instruments available. This liquidity edge is structural and is drawn in large part by retail flow.
The overlooked prize in bringing perpetuals onshore is the creation of a deep, durable pool of liquidity in the instruments that hedging desks want. The two halves of the debate are connected, as the liquidity that institutions want already exists, drawn in large part by retail, and what lets them use it safely is institutional-grade default management. The question was never whether perpetuals are dangerous but how a venue handles a default when the market is under stress.
Regulated clearing has established the standard for decades, which is also the standard that Bullish is building toward. When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses through auto-deleveraging, which force-closes offsetting profitable positions at an off-market price. In contrast, the clearing model starts with the defaulter, whose own margin and fund contribution absorb the first loss, and the position is worked off through the order book or auctioned to other clearing members. Behind this sits a pre-funded guaranty fund sized to regulated clearinghouse standards, with broad loss-sharing only beyond that, and rarely.
While this does not completely eliminate risk, it breaks the chain that turns one blown-out account into a market-wide cascade, and it is the difference between a venue that contains a failure and one that transmits it. Meeting this standard makes perpetuals infrastructure that institutions can use, while missing it creates the hazard that critics describe, regulated or not.
Perpetuals were never the whole story; the design is.