Brett Harrison, former president of FTX US, plans to launch a new perpetual futures exchange in the coming weeks, but it will not include a crypto market.
In fact, a former FTX US executive said: decryption He believes that offering leveraged trading, which uses borrowed funds to increase profits and losses, with volatile crypto assets is “irresponsible” and would be a “huge problem.” His comments echo those of analysts who have recently raised concerns about overleverage in the crypto market following the October 10 flash crash that saw a record $19 billion exit the derivatives market.
Harrison’s new exchange is called Architect and will offer perpetual futures in traditional stocks, foreign exchange markets, and other asset classes such as rare metals. Digital assets will not be listed on exchanges, but users will be able to use some stablecoins as collateral, he said. It will be made available to institutional investors in the coming weeks, followed by retail investors in the “intermediate future.”
Perpetual futures (PERPs) are derivative contracts with no expiry date that allow users to use borrowed capital to place leveraged bets on the direction of an asset. Traders can open long positions, betting that the price of an asset will rise, or short positions, betting that the price will fall, as a hedging strategy against spot market risk.
If the asset moves in the trader’s favor, the position will grow to the selected leverage multiplier. However, if the trader is wrong, the losses can also be doubled, and in the worst case, the position can be liquidated or forced to close.
That in itself is good enough, according to Harrison, who said the architect was inspired by how perpetual futures have been “very successful and useful” in the cryptocurrency world. According to a former FTX US executive, the problem begins when exchanges offer large amounts of leverage – 100x or even 1000x of a trader’s initial capital – in highly volatile markets prone to large swings.
“I think this is a huge problem. I think it’s irresponsible. It encourages people to deplete their accounts as quickly as possible,” Harrison said. decryption. “The purpose of a derivatives exchange is to allow people to safely and reliably establish open interest over the long term. The purpose is not to blow up accounts and try to collect liquidation fees. I think this is more like a gambling platform than an actual futures trading platform.”
According to Harrison, Architect will offer up to 25x leverage on trading positions, and only on the lowest volatility assets offered by the exchange, such as the EUR/USD trading pair. Leverage on more volatile assets, such as Tesla stock, could be as high as 8x, he said.
This is very different from the cryptocurrency derivatives market, where 100x or even 1,000x leverage to make quick profits is increasingly the norm.
According to , perpetual futures in the crypto market currently generate a monthly trading volume of $1.3 trillion. Defilama. And much of the rise of criminals in cryptocurrencies is thanks to decentralized exchanges such as: superfluidity and asterlowering barriers to entry.
Traditional financial and centralized exchanges require users to complete a know-your-customer process (providing personally identifiable information) and fill out a risk assessment form or pass a quiz. Such requirements do not exist in the world of decentralized finance or decentralized exchanges (DEXs). This means that anyone with a cryptocurrency wallet will have access to 1,001x leverage on Aster DEX.
Providers and proponents of leveraged trading on decentralized exchanges argue that they are leveling the playing field and democratizing access to these markets beyond just institutional investors and hedge funds.
Gleb Kostarev, co-founder of Telegram trading app Blum, previously said: decryption Adding criminals to the platform was a “natural” move because of the high demand for trading strategies. He also said that the Blum app offers 100x leverage as a way to attract retail traders, as leverage is a more attractive service for investors with smaller portfolios.
In other words, crypto exchanges that offer high leverage through PERP are just giving retail traders what they want.
BitMEX, the Seychelles-based exchange widely known for inventing crypto-based perpetual futures, did not respond. to decryptionhas requested comment on Harrison’s comments. Hyper Liquid, Aster, and Bloom similarly failed to respond.
Following a record mass extinction in the crypto derivatives market earlier this month, Harrison argues that there is still an incentive for retail traders to suffer and for further liquidation cascades to wreak havoc on the crypto market in the future.
“If exchanges tolerate irresponsible leverage and don’t have proper procedures in place to stop that leverage, they will eventually find themselves in a chain of liquidations,” Harrison said.
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