The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by the potential for high-leverage, retail-driven instruments to destabilize the market. However, this critique is misdirected, as the risk is inherent to the venue's design, not the perpetual futures contract itself. The venue's choices, such as leverage caps, margin rules, and default management, determine the level of risk.
The recent crypto market deleveraging episodes, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages, which led to a liquidation cascade. This cascade 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 how a given venue is designed.
Regulatory requirements, such as segregated funds and a registered clearing entity, are necessary to secure the baseline. However, the way a venue handles defaults under stress is a separate choice, and it varies even within the regulated perimeter. A more significant objection to perpetuals is that institutions may not want them, as they are speculative and lack term structure, making them imperfect substitutes for regulated futures. However, this is not how institutions use perpetuals.
Many institutions use perpetuals to hedge delta, not as a replacement for dated futures, but because they offer liquidity. Term structure is less relevant to delta hedging than liquidity, and perpetuals are often the deepest and most continuously tradable delta-one instruments available. The liquidity edge of perpetuals is structural, drawn in by retail flow, and this is the overlooked prize in bringing perpetuals onshore. The two halves of the debate are connected: the liquidity institutions want already exists, and what lets them use it safely is institutional-grade default management.
The question is not whether perpetuals are dangerous, but how a venue handles defaults under stress. Regulated clearing has established a 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. The position is worked off through the order book or auctioned to other clearing members, with a pre-funded guaranty fund behind it.
This design breaks the chain that turns one blown-out account into a market-wide cascade, containing the failure at its source. Meeting this standard makes perpetuals infrastructure institutions can use, while missing it creates the hazard critics describe.