The systemic-risk debate over perpetual futures is aimed at the wrong target
Perpetual futures are not inherently systemically risky; the risk comes from the venue design around them. Key drivers of contagion are leverage limits, margin rules, funding mechanics, liquidation methods, and default management. In crypto, liquidation cascades become dangerous when venues use manipulable indices or auto-deleveraging that forces losses onto profitable traders. Regulation should therefore focus on clearing structure: segregated customer funds, a registered clearing entity, supervision, and robust default handling. Institutions may still prefer perpetuals less than dated futures because perpetuals lack term structure and have variable funding, making them imperfect hedges. But many desks use them anyway because they are often the deepest, most continuously tradable instruments, especially for delta hedging. The main advantage of bringing perpetuals onshore is combining their liquidity with institutional-grade clearing. A clearinghouse-style model absorbs defaults at the source through margin, a guaranty fund, and orderly liquidation or auction, instead of socializing losses through forced deleveraging. The core question is not whether perpetuals exist, but whether the venue contains or transmits stress.
