Brett Harrisonthe former president of FTX US, is set to roll out a new perpetual futures exchange in the coming weeks, but it will not include crypto markets.
In fact, the former FTX US executive said Decrypt he believes that offering leveraged trades, where borrowed capital is used to multiply both gains and losses, on volatile crypto assets is “irresponsible” and becoming a “major problem”. His comments echo those of analysts who recently raised concerns on excessive leverage in the crypto market following the flash crash on October 10when a record $19 billion was withdrawn from the derivatives market.
Harrison’s new exchange, called Architect, will offer perpetual futures on traditional stocks, foreign exchange markets and other asset classes, such as rare metals. Although digital assets are not publicly traded, users will be able to use certain stablecoins as collateral, he said. In the coming weeks, it will be accessible to institutional investors, before opening up to individual investors in a “future intermediary”.
Perpetual futures, or perps, are derivative contracts with no expiration date that allow users to place leveraged bets, using borrowed capital, on the direction of an asset. Traders can open long positions to bet that the price of an asset will rise, or short positions to bet that it will fall, using it as a hedging strategy against risk in the spot market.
If an asset moves in the direction that favors the trader, their position will increase up to the chosen leverage multiplier. But if the trader is wrong, his losses will also be multiplied and, in the worst case, his positions may be liquidated or closed by force.
And that’s all well and good in itself, according to Harrison, who said Architect was inspired by how “extremely successful and useful” perpetual futures have been in the crypto world. The problems start when exchanges offer significant leverage – 100 or even 1,000 times a trader’s initial capital – in markets that are highly volatile and prone to big swings, the former FTX US executive said.
“I think it’s a major problem. I think it’s irresponsible. It encourages people to blow up their accounts as quickly as possible,” Harrison said. Decrypt. “The goal of a derivatives exchange is to allow people to establish open interests safely, over the long term. The goal is not to try to blow up accounts and collect liquidation fees. I think it’s much more of a gaming platform than a true futures trading platform.”
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