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 key factors that determine systemic risk in a derivatives market are leverage caps, margin requirements, funding design, and default management, all of which are choices made by the venue, not inherent properties of the contract. The recent deleveraging episodes in the crypto market, including the October 2025 cascade, were triggered by a combination of macro shocks, stablecoin de-pegs, exchange outages, oracle failures, over-leverage, and thin liquidity.
The risk transmission mechanism that turns a sell-off into a systemic event is typically the liquidation cascade, where forced liquidations depress prices, triggering more liquidations. However, this is not a feature of perpetual futures, but rather a result of venue choices such as manipulable indexes and auto-deleveraging. The real question is not whether perpetual futures belong in regulated markets, but how a given venue is built.
Regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are necessary to secure the baseline. How a venue handles defaults under stress is a separate choice that varies even within the regulated perimeter. A more valid 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 limited institutional appetite for perpetuals, treating them as speculative rather than a replacement for regulated futures.
This is correct in terms of mechanics, as perpetuals fall short as a substitute for dated futures due to variable funding and basis risk. However, institutions are not using perpetuals as a replacement for dated futures, but rather to hedge delta, as they offer liquidity that is not available in dated futures.
Many of the institutions trading options on the Bullish Exchange use perpetuals to hedge delta, not as a stand-in for dated futures, but because that is where the liquidity is. Term structure is less relevant to delta hedging than liquidity, and many of crypto's dated futures are thinly traded, while perpetuals are the deepest, most continuously tradable delta-one instruments available. The liquidity edge of perpetuals is structural, drawn in by retail flow, and is the overlooked prize in bringing perpetuals onshore.
The two halves of the debate are one: the liquidity 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 'are perpetuals dangerous?' but 'when the market is under stress, how does a venue handle a default?' Regulated clearing has established the standard for decades, which is also the standard Bullish is building toward. When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses, but the clearing model works differently, starting with the defaulter's own margin and fund contribution absorbing the first loss.
The position is worked off through the order book or auctioned to other clearing members, with a pre-funded guaranty fund sized to regulated clearinghouse standards, with broad loss-sharing only beyond that, and rarely. This approach breaks the chain that turns one blown-out account into a market-wide cascade, containing the failure at its source, rather than transmitting it. Meeting this standard is what makes perpetuals infrastructure that institutions can use, while missing it poses the hazard that critics describe, regulated or not.