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 misguided, as the risk is not inherent to the contract itself, but rather a result of the venue's design. The real issue lies in the choices made by the trading venue, such as leverage caps, margin rules, and default management. The risk of systemic events is not caused by perpetual futures, but by the transmission of risk through liquidation cascades, which can be mitigated by proper venue design.
Regulatory requirements, such as segregated funds and registered clearing entities, are necessary to secure the baseline, but the handling of defaults under stress is a separate choice that varies even within regulated markets. The real question is not whether perpetuals belong in regulated markets, but how a given venue is built. Institutions may not want perpetuals as a replacement for regulated futures, but they can use them to hedge delta, and the liquidity of perpetuals is a significant advantage. The design of perpetuals draws in retail flow, concentrating liquidity, and this liquidity edge is structural.
What enables institutions to use this liquidity safely is institutional-grade default management, which contains systemic risk. The debate surrounding perpetuals is not about their inherent danger, but about how a venue handles defaults under stress. Regulated clearing has established a standard for decades, and Bullish is building towards this standard. By containing defaults at their source, rather than transmitting them to the market, the risk of systemic events can be mitigated, and perpetuals can become a useful tool for institutions.