The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, but this critique is misplaced. The risk is not inherent to the contract itself, but rather a result of the venue's design, including factors such as leverage caps, margin rules, and default management. Recent deleveraging episodes in the crypto market, including the October 2025 cascade, were caused by a combination of macro shocks, stablecoin de-pegs, exchange outages, oracle failures, over-leverage, and thin liquidity.

However, it is the liquidation cascade, often triggered by venue choices such as manipulable indices and auto-deleveraging, that turns a sell-off into a systemic event. Regulatory requirements, including segregated funds, registered clearing entities, and oversight, are essential for securing the baseline.

Nevertheless, the real question is how a given venue is built, particularly in terms of its default handling under stress. Some may argue that institutions do not want perpetuals, citing limited appetite and treating them as speculative rather than a replacement for regulated futures.

However, this perspective overlooks the fact that institutions use perpetuals to hedge delta, taking advantage of their liquidity, which is often deeper and more continuous than that of dated futures. The design of perpetuals draws in retail flow, concentrating liquidity and creating a structural edge. By providing institutional-grade default management, venues can allow institutions to use this liquidity safely, containing systemic risk.

The key to mitigating risk is not to eliminate perpetuals, but to ensure that venues are designed to handle defaults effectively, using a clearing model that starts with the defaulter's own margin and fund contribution, followed by a pre-funded guaranty fund and broad loss-sharing only in extreme cases. This approach breaks the chain that turns a blown-out account into a market-wide cascade, containing the failure rather than transmitting it.

Ultimately, the design of the venue, rather than the contract itself, is the critical factor in determining systemic risk.