The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk due to their potential for high-leverage trading. However, this criticism is misplaced, as the risk is inherent to the venue's design, not the contract. The venue's choices, such as leverage caps, margin requirements, and default management, determine the level of risk. The recent episodes of deleveraging 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 can lead to a systemic event, is often triggered by venue choices, such as a manipulable index and auto-deleveraging. These features 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, a registered clearing entity, and supervisory oversight, are necessary to establish a baseline.
However, the way a venue handles defaults under stress is a separate choice that varies even within regulated markets. A more significant concern is that institutions may not want perpetuals at all, as they are often seen as speculative and not a replacement for regulated futures. However, institutions are using perpetuals to hedge delta, not as a substitute for dated futures, but because they offer liquidity. The liquidity edge of perpetuals is structural, drawn in by retail traders, and provides a deep, durable pool of liquidity that institutions can use safely with institutional-grade default management.
The debate surrounding perpetuals is not about their inherent risk, but about how a venue handles defaults when the market is under stress. Regulated clearing has established a standard for decades, which is also the standard that Bullish is building towards. By containing defaults at their source, rather than transmitting them to the market, the risk of a liquidation cascade can be mitigated, and perpetuals can become a safe and useful tool for institutions.