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 misdirected, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The key factors that contribute to systemic risk include leverage caps, margin rules, funding design, and default management.

The recent episodes of deleveraging in the crypto market, such as the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages. The liquidation cascade that ensued was exacerbated by venue choices, such as manipulable indices and auto-deleveraging, which are not inherent to perpetual futures.

The real question is not whether perpetuals belong in regulated markets, but rather how a given venue is built and managed. Regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are essential for securing the baseline. However, the way a venue handles defaults under stress is a separate choice that can vary even within regulated markets.

A more valid concern is that institutions may not want perpetuals at all, as they may not be suitable as a replacement for regulated futures due to their variable funding and basis risk. Nevertheless, institutions are using perpetuals to hedge delta, not as a substitute for dated futures, but because they offer liquidity and execution.

The design of perpetuals draws in retail flow, which concentrates liquidity and creates a deep, durable pool of liquidity that institutions can use safely. The key to containing systemic risk is institutional-grade default management, which is the same standard that regulated clearinghouses have established. By handling defaults in a way that absorbs losses at the source, rather than transmitting them to the market, venues can break the chain that turns a blown-out account into a market-wide cascade. This is the difference between a venue that contains a failure and one that transmits it, and it is the transmission that critics fear.

Meeting this standard is crucial for perpetuals to become infrastructure that institutions can use.