The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, but this criticism is misdirected. The real risk lies not in the perpetual futures contracts, but in the design of the venues on which they are traded. Factors such as leverage limits, margin rules, index construction, and default handling contribute to systemic risk, not the contracts themselves.
Recent deleveraging episodes in crypto have been caused by a combination of macro shocks, stablecoin de-pegs, exchange outages, oracle failures, over-leverage, and thin liquidity, which can trigger a liquidation cascade. However, this cascade is often the result of venue choices, such as manipulable indices and auto-deleveraging, rather than a feature of perpetual futures.
The key to mitigating systemic risk is not to ban perpetual futures, but to ensure that venues are designed with robust risk management systems, including segregated funds, registered clearing entities, and regulatory oversight. Institutions may not want perpetual futures as a replacement for regulated futures, but they can use them to hedge delta exposure, taking advantage of the liquidity they provide. The liquidity edge of perpetual futures is structural, drawn in by retail flow, and can be a valuable tool for institutions if managed safely with institutional-grade default management.
The question is not whether perpetual futures are dangerous, but how venues handle defaults under stress. Regulated clearing has established a standard for managing defaults, and Bullish is working towards this standard. By containing defaults at their source, rather than transmitting them to the broader market, venues can break the chain of risk that turns a blown-out account into a market-wide cascade.