Leo Schwartz
5 min read
In This Article:
A new type of crypto exchange called Rails is launching in the U.S. this week. Backed by $20 million in funding, including $14 million in new token warrants, Rails wants to stand out in a crowded field by offering U.S. traders a popular but hard-to-access type of asset: perpetual futures, or perps.
Perpetual futures are a crypto-specific type of derivative and have been offered for years at offshore exchanges, but not in the U.S. until recently due to regulatory uncertainty.
In an interview with Fortune, Rails cofounder and CEO Satraj Bambra said the new exchange decided to launch perps in the U.S. after consulting with lawyers and working with regulators overseeing the market. “This is not random,” he said. “No one would do this in the previous administration.”
Not many crypto founders, or their investors, would evoke the image of the failed crypto empire FTX. Still, both Bambra and his chief backer, Slow Ventures’ Sam Lessin, said their goal for Rails is to build a better version of Sam Bankman-Fried’s collapsed exchange.
Perps lie at the center of that vision. Most U.S. exchanges offer spot trading for popular cryptocurrencies, meaning users can buy and sell digital assets like Bitcoin and Ethereum at their current (spot) price. Many sophisticated traders, however, prefer a wider array of products that allow them to speculate on the future price of the asset, whether it rises or sinks. Such tools, called derivatives, allow traders to bet on price movement without holding the underlying asset.
While derivatives are common in traditional finance, crypto’s 24/7 nature gave rise to a new type of tool through perps, which operate like futures contracts but don’t expire. “We’re a true trading platform,” said Bambra. “You want to be able to play both sides of the market.”
FTX rose in popularity in part because of its suite of trader-friendly tools, including perps, though it never launched the product in the U.S. “Obviously, you need exchanges to be really high performance and good for traders, which FTX was in its day,” said Lessin. “Save for the big issues.”
One of the core issues with FTX was that the exchange held its users’ assets rather than allowing them to self-custody—a problem that infamously blew up because Bankman-Fried used them to fund his own venture investments and luxury real estate.
Bambra himself is a crypto trader, running the $100 million liquid fund for the top Canadian crypto venture firm Round13. He said that the operation had a “significant” amount stuck on FTX, which it later recovered in the bankruptcy, though he declined to give a specific figure.
