What Happened? FTX is an innovative digital asset exchange based in Hong Kong that creates perpetual futures contracts, options or other financial derivatives on anything that is interesting to their client base, including the recently concluded U.S. Presidential election. However, while FTX is known for allowing traders to go long or short many of the more well-known digital currencies, it has recently branched into offering tokens representing fractionalized shares in U.S. stocks.
Why Does This Matter? When many people think about digital assets, they tend to gravitate toward things that involve blockchain and/or bitcoin. However, the tokenization of assets is one major portion of the new digital asset economy that is picking up steam. Within the last few weeks, FTX has not only come out with tokenized versions of major tech company stocks (AAPL, AMZN, GOOGL, TSLA, etc), but also perpetual futures that allow traders to employ as much as 100x leverage. FTX is definitely not the first to offer this type of service – Charles Schwab offers fractional share trading, but they are a registered U.S. broker/dealer. Robinhood, the online trading platform, also offers this service.
Opinion: Neither firm mentioned above (nor any others) offer both the tokenized “cash” trading and the corresponding derivative contracts. FTX is well-known enough that this is impossible to escape notice by the S.E.C., the CFTC and other U.S. regulators. Will this lead to:
Scenario A – the U.S. regulators attempt to claim global jurisdiction over their home stock markets and try to clamp down on this type of offering, or
Scenario B – a company like FTX driving innovation and showing that different parts of the financial system are quickly becoming increasingly available to participants worldwide, regardless of locale
Regardless of the outcome, it will be very interesting to watch.