The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage retail trading. However, the risk is not inherent to the contract itself, but rather a result of the venue's design choices, such as leverage caps, margin rules, and default management.
The real question is not whether perpetuals belong in regulated markets, but how a given venue is built to mitigate these risks. Regulatory requirements, such as segregated funds and oversight, are essential, but the handling of defaults under stress is a separate choice that varies even within regulated markets. Institutions may not want perpetuals as a replacement for regulated futures due to their speculative nature and lack of term structure, but they can be useful for hedging delta exposure.
The liquidity edge of perpetuals is structural, drawn in by retail flow, and 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 meeting this standard can break the chain of risk transmission, making perpetuals a viable infrastructure for institutions.