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 misplaced, as the risk is not inherent to the perpetual futures contract itself, but rather a result of the venue's design. The venue's choices, such as leverage caps, margin rules, and default management, are the primary factors that determine systemic risk in a derivatives market. The recent deleveraging episodes in the crypto market, including the October 2025 cascade, were caused by a combination of factors, including macro shocks, stablecoin de-pegs, and exchange outages.
The liquidation cascade, which is often triggered by over-leverage and thin liquidity, can turn a sell-off into a systemic event. However, this is not a feature of perpetual futures, but rather a result of poor venue design. 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, a registered clearing entity, and supervisory oversight, are necessary to establish a baseline level of safety.
Nevertheless, how a venue handles a default under stress is a separate choice, and it varies even within the regulated perimeter. A more valid concern is that institutions may not want perpetual futures at all. 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 their variable funding and basis risk.
However, institutions are not using perpetuals as a replacement for dated futures, but rather to hedge delta, or the directional exposure to the underlying's price. Many institutions trading options on the Bullish Exchange use perpetuals to hedge delta, not because they are a perfect substitute for dated futures, but because they offer liquidity. 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 and most continuously tradable delta-one instruments available. The liquidity edge of perpetuals is structural, drawn in by retail traders who are attracted to their continuous tradability and lack of expiry.
This liquidity is the overlooked prize in bringing perpetuals onshore, as it provides a deep and durable pool of liquidity in the instruments that a hedging desk wants. The two halves of the debate are one: the liquidity that institutions want already exists, drawn in large part by retail, and what lets them use it safely is institutional-grade default management, the same thing that contains the systemic risk that critics fear.
The question was never 'are perpetuals dangerous?' but rather '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 that Bullish is building towards, having filed with the CFTC to operate as a regulated contract market and clearinghouse. When a liquidation's shortfall outruns the insurance fund, the backstop is to socialize losses, but the clearing model works differently. It starts with the defaulter, whose own margin and fund contribution absorb the first loss, and the position is worked off through the order book or auctioned to other clearing members.
Behind that sits 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. This is the difference between a venue that contains a failure and one that transmits it, and the transmission is the systemic risk that critics fear. Meeting this standard makes perpetuals infrastructure that institutions can use, while missing it creates the hazard that critics describe, regulated or not.
Perpetuals were never the whole story; the design is.