In short
- Former FTX US President Brett Harrison shared this Declutter that offering up to 1,001x leverage on volatile crypto assets is “irresponsible” and a “big deal.”
- Proponents of highly leveraged crypto products believe that they simply give retail users what they want and level the playing field.
- Harrison’s comments come as he prepares to launch a perpetual futures exchange for traditional assets in the coming weeks, although leverage will be limited.
Brett Harrison, the former president of FTX US, plans to roll out a new perpetual futures exchange in the coming weeks, but it won’t involve crypto markets.
The former American FTX CEO even said that Declutter he believes that offering leveraged trading, which uses borrowed capital to multiply both profits and losses, on volatile crypto assets is “irresponsible” and is becoming a “major problem.” His comments echo those of analysts who recently raised concerns about excessive leverage in the crypto market following the sudden crash on October 10, when a record $19 billion was washed out of the derivatives market.
Harrison’s new exchange, called Architect, will offer perpetual futures on traditional stocks, currency markets and other asset classes such as rare metals. Although digital assets will not be listed on the exchange, users can use a number of stablecoins as collateral, he said. It will become available to institutions in the coming weeks, before being opened to retail investors in the “intermediate future.”
Perpetual futures, or perps, are derivative contracts without an expiration date that allow users to place bets on the direction of an asset using borrowed capital. Traders can open long positions to bet that the price of an asset will rise, or short positions to bet that the price will fall, using this as a hedging strategy against spot market risk.
If an asset moves in the direction that favors the trader, his position will increase up to the multiplier of the chosen leverage. But if the trader is wrong, his losses will be multiplied as well – and in the worst case, his positions may be liquidated or forcibly closed.
And that’s all well and good, according to Harrison, who said Architect was inspired by how “extremely successful and useful” perpetual future has been in the world of crypto. The problem starts when exchanges offer large amounts of leverage — 100 or even 1,000 times a trader’s starting capital — in highly volatile markets that are prone to big swings, the former FTX US executive said.
“I think it’s a big problem. I think it’s irresponsible. It encourages people to blow up their accounts as quickly as possible,” Harrison said. Declutter. “The purpose of a derivatives exchange is to allow people to secure open interest safely and over the long term. The purpose is not to try to inflate accounts and collect liquidation fees. I think this is much more of a gambling platform than an actual futures trading platform.”
Architect will offer a maximum leverage of 25x on trading positions, Harrison said, and only on the least volatile assets offered by the exchange, such as the EUR/USD trading pair. More volatile assets, such as Tesla stock, may only have a maximum leverage of 8x, he said.
It’s a far cry from the crypto derivatives market, where the rush for quick profits on 100x or even 1,000x leverage has increasingly become the norm.
Perpetual futures in the crypto market now generate $1.3 trillion per month in volume DefiLlama. And much of the rise of offenders in crypto is due to decentralized exchanges, such as Hyperfluid And Asterthus lowering the barrier to entry.
In traditional finance or on centralized exchanges, users must complete know-your-customer procedures (providing personally identifiable information), fill out risk assessment forms, or take quizzes. Such requirements do not exist in the world of decentralized finance and decentralized exchanges, or DEXs, meaning anyone with a crypto wallet can access 1,001x leverage on the Aster DEX.
Vendors and proponents of leveraged trading on decentralized exchanges argue that they create a level playing field, democratizing access to these markets beyond just institutional investors and hedge funds.
Gleb Kostarev, co-founder of the Telegram trading app Blum, said this earlier Declutter that adding Perpetrators to its platform was a no-brainer due to the high demand for the trading strategy. He also said that the Blum app offers 100x leverage as a way to entice retail traders, because leverage is a more attractive offering for those with smaller portfolios to invest.
In other words, crypto exchanges that offer high leverage through perpetrators are simply giving retail traders what they want.
BitMEX, the Seychelles-based exchange widely credited with inventing crypto-based perpetual futures, did not respond Unpleasant Declutter‘s request for comment regarding Harrison’s statements. Hyperliquid, Aster and Blum also did not respond.
After the record loss in the crypto derivatives market earlier this month, Harrison argues that the incentives remain for retail traders to get hurt, and for more liquidation cascades to wreak havoc on the crypto market in the future.
“If the exchange allows irresponsible leverage and doesn’t have good procedures in place to counter that leverage, then you’re going to end up with liquidation cascades,” Harrison said.
Daily debriefing Newsletter
Start every day with today’s top news stories, plus original articles, a podcast, videos and more.
