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 critique is misguided, as the risk is not inherent to the contracts themselves, but rather a result of the venue's design.
The real issue lies in the choices made by the venue, such as leverage caps, margin rules, and default management. The risk of systemic events, such as liquidation cascades, is not caused by perpetual futures, but rather by the transmission mechanisms in place. A well-designed venue, with robust risk management and clearing mechanisms, can mitigate these risks and provide a safe and stable environment for trading.
In fact, perpetual futures can provide a deep and durable pool of liquidity, which is essential for institutions looking to hedge their risks. The key is not to dismiss perpetual futures outright, but to focus on building a robust and reliable trading infrastructure that can support these instruments. By doing so, we can create a market that is both secure and efficient, and that provides the necessary tools for institutions to manage their risks effectively.