The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, primarily driven by high-leverage, retail-oriented instruments. However, this critique is misdirected, as the true source of systemic risk lies in the design of the trading venue, including factors such as leverage limits, margin rules, index construction, and default handling, rather than the perpetual futures contracts themselves.
The risk of systemic events is not inherent to no-expiry contracts but is instead influenced by venue-specific choices. Recent deleveraging episodes in the crypto market, such as the October 2025 cascade, have been triggered by a combination of macro shocks, stablecoin de-pegs, exchange outages, oracle failures, over-leverage, and thin liquidity, with liquidation cascades playing a key role in transmitting risk across venues. The violence of these cascades is often exacerbated by venue design choices, including manipulable indices and auto-deleveraging mechanisms, which are not inherent features of perpetual futures.
The real question, therefore, is not whether perpetual futures belong in regulated markets but how a given venue is designed and managed. Regulatory requirements, such as segregated funds, registered clearing entities, and supervisory oversight, are essential for establishing a baseline level of security. However, the handling of defaults under stress is a separate consideration that can vary significantly even within regulated environments. A more nuanced objection to perpetual futures is that institutions may not have an appetite for them, given their limitations as a replacement for regulated futures, including the lack of term structure and basis risk.
Nevertheless, institutions are using perpetual futures to hedge delta exposure, leveraging their liquidity advantage over dated futures, which are often thinly traded. The liquidity edge of perpetual futures is structural, driven by their design, which attracts retail flow and concentrates liquidity. This overlooked benefit of bringing perpetual futures onshore is the creation of a deep, durable pool of liquidity in instruments that hedging desks desire.
The two halves of the debate are interconnected: the liquidity institutions seek is already present, largely due to retail participation, and what enables safe use of this liquidity is institutional-grade default management, which also mitigates the systemic risk critics fear. The critical question is not whether perpetual futures are dangerous but how a venue manages defaults during periods of market stress. Regulated clearing has set a standard for decades, which is also the benchmark Bullish is working towards, having filed with the CFTC to operate as a regulated contract market and clearinghouse.
In contrast to auto-deleveraging, which force-closes profitable positions at off-market prices to absorb a defaulter's loss, the clearing model starts with the defaulter's own margin and fund contribution absorbing the first loss, followed by a pre-funded guaranty fund and broad loss-sharing only in extreme cases. While this approach does not eliminate risk entirely, it breaks the chain of events that can turn a single default into a market-wide cascade, containing the failure at its source rather than transmitting it. Meeting this standard is what makes perpetual futures viable infrastructure for institutions; failing to do so poses the hazards critics describe, regardless of regulatory status. The design of the venue, not the perpetual futures themselves, is the critical factor in determining systemic risk.