Will Perps Eat All of Finance? Ex-FTX.US CEO Brett Harrison Bets Yes

Architect Exchange is launching a regulated platform for perpetual futures on traditional asset classes, aiming to offer superior derivatives trading with robust risk management and cross-margin capital efficiency.

• Architect Exchange is launching regulated perpetual futures for traditional asset classes, offering continuous leveraged exposure without expiry.

• The platform is licensed in Bermuda, enabling stablecoin collateral and employing robust risk management practices from traditional finance.

• Cross-margining across multiple asset classes on a single system enhances capital efficiency for institutional clients.

Architect Exchange, founded by former FTX US CEO Brett Harrison, is introducing a regulated platform for perpetual futures ('perps') across various traditional asset classes, including currencies, stocks, and commodities. This initiative addresses the inefficiencies of traditional expiring futures and the risks observed in some crypto exchanges, by providing a superior, non-expiring derivative product with enhanced risk management, regulated licenses, and the ability to use stablecoins as collateral. The platform emphasizes standardized contracts and a transparent order book model, contrasting with the broker-versus-client structure of CFDs, and aims to serve institutional clients by partnering with existing intermediaries for distribution.

Perpetual Futures for TradFi

• 00:02:22 Perpetual futures, or 'perps,' are an established derivative product that gained popularity in crypto markets due to their 24/7 trading, leverage potential, and lack of expiration, which often makes them superior to traditional expiring futures. Less than 2% of traditional futures contracts are taken to delivery, with most positions rolled or closed before expiry. Architect Exchange aims to bring this instrument to traditional asset classes like foreign currencies, stocks, indexes, and metals through its new licensed and regulated exchange, AX.

Regulatory Framework and Model

• 00:04:27 Architect operates under multiple licenses, including a US-regulated multi-asset electronic brokerage with CFTC and SEC licenses for futures, options, stocks, and ETFs. For its new exchange, AX, it obtained an Investment Business Activity (IBA) license and a Digital Asset Business Act (DABA) license from the Bermuda Monetary Authority. The DABA license specifically allows stablecoins to be used as collateral for traditional asset perpetuals, alongside fiat currencies like USD, facilitating faster margin calls, especially on weekends.

Advanced Risk Management

• 00:10:04 Architect Exchange prioritizes robust risk management, learning from past crypto market incidents like the 'Black Friday' event. The platform will implement traditional finance safeguards such as price bands to prevent flash crashes and avoid immediate 'tear-ups' or auto-deleveraging (ADL), which should be a last resort. Initial margin requirements and maximum leverage are determined on a product-by-product basis using a Value at Risk (VAR) model based on extensive historical price data, rather than offering uniform high leverage for all assets.

Capital Efficiency & Growth

• 00:32:41 A significant advantage of Architect's approach is the enhanced capital efficiency realized when a single customer can build a cross-margined long-short portfolio using perps across diverse asset classes like energy, metals, stocks, and currencies within one system. The exchange plans to establish initial liquidity through market maker incentives and expects future growth by distributing its perpetual products through partnerships with existing brokerages and prime brokers, rather than directly competing as a 'retail everything app'.