Perps Aren't Going Anywhere, But They Could Use Some Adult Supervision

ADL is basically the admission that perpetuals don’t work in all scenarios. Sadly, it takes stress events like these to discover that your “hedge” is only yours until the exchange decides it isn’t.

Why do we need ADL in the first place?

There’s a reason why ADL exists, and it’s not hard to understand. When liquidations can’t be executed above the bankruptcy price and the insurance fund isn’t big enough, the exchange forcibly reduces the most profitable and leveraged positions so the venue doesn’t go insolvent.

This is preferable to having everything go down and is part of the business model. However, as a market participant, this feels like you did everything right but you’re being trimmed because someone else lit themselves on fire.

“But TradFi doesn’t do this”

This doesn’t happen in TradFi. That’s right. And that’s because dated futures and listed options live under a different constitution.

In a clearinghouse world, risk is warehoused by a central counterparty clearing house with a formal default waterfall, gains and losses settle via variation margin, and the entire design exists so winners get paid and hedges persist through the storm. Extreme tools do exist — auctions, assessments, even partial tear‑ups in end‑of‑days scenarios — but the first instinct is to fund the loss, not haircut the winners.

That’s the protection that ADL avoids, and perps can’t promise in a crunch. Perps invert who’s the priority: When buffers fail, winners take the haircut first because keeping the venue alive comes before keeping your book intact.

Rumors of perps’ demise are greatly exaggerated

Does this mean perps don’t belong in the crypto industry? Were they just a passing fad? Did Black Friday signal the end of perps? Not at all. Perps are a brilliant, innovative part of the crypto landscape. They are spectacular for price discovery and round‑the‑clock expression, and — let’s be honest — fun. Degens love the dopamine, and markets love the volume.

…They’re just not for institutions

What perps are not a substitute for is institutional‑grade risk transfer. Institutions don’t price on vibes.

Most traders learned about ADL only when it hit them. The few who knew allegedly negotiated around it. While allegations of “non‑ADL” carve‑outs aren’t confirmed, if preferential safety belts existed, is that the way decentralized systems are supposed to behave?

All of these are institutional repellents. With the effects of ADL now being widely known and, hopefully, well understood, institutional traders managing risk might think twice about using perps.

What a grown‑up crypto market should build next

I am by no means suggesting that we need fewer perps. What we need is more risk tools and clearer contracts with reality. A starting place to make the existing system better could include:

• Bigger, ring-fenced insurance funds with real-time telemetry.
• Circuit breakers and index sanity checks keyed to oracle dispersion, not just last trade.
• ADL queues that recognize hedges and don’t penalize risk‑reducing portfolios like outright punts.
• Cross‑venue coordination on halts and bankruptcy logic.

But really, what crypto needs is a new set of risk tools, new on-chain instruments that let you park the tails, and maybe even tokenized ADL insurance that pays precisely when your winning leg gets sliced.

The uncomfortable conclusion

Black Friday didn’t kill the perp, but it exposed a fundamental problem with them. ADL made an underreported trade‑off explicit for many market participants: In the worst moments, the venue protects itself before it protects your hedge.

Perps will keep humming because they mostly work, and people like leverage. But if crypto wants to grow up, it needs a proliferation of additional risk tools and the humility to admit that not every instrument is for every job.