Financial Instruments Meet Gamble: Perpetual Futures, Prediction Markets, and Stock Tokenization

The boundaries between finance and gambling were explored by experts in a recent podcast episode.

Hosted by three industry professionals - Inada Tomohiko, Sakai Yusuke, and Otsubo Shin'ya - the discussion centered around perpetual futures, prediction markets, and stock tokenization.

Inada, a professor at Sunan Public University's Information Science Department, began by explaining how traditional futures contracts are designed to mitigate risk for companies and investors. He used examples such as wheat and ice cream ingredient prices to illustrate this concept.

The conversation then turned to perpetual futures, which do not have an expiration date and can lead to price deviations from actual market values. Inada noted that the system in place is meant to suppress these deviations through funding rates, but raised concerns about whether these contracts are being used primarily for speculative purposes rather than hedging.

Sakai, a founder of Grume app and Web3 expert, drew comparisons between prediction markets and weather derivatives. He argued that while the former can serve as a tool for risk management, they also have the potential to be used for gambling-like activities by individuals who are not directly involved in economic activities.

The discussion also touched on stock tokenization, with Sakai expressing concerns about the potential for tokens to become speculative instruments. The group explored scenarios where actual stocks could be traded on public blockchains without Know Your Customer (KYC) checks or circuit breakers, raising questions about whether issuers would welcome such a development.

The experts concluded by emphasizing the importance of understanding the limitations and risks associated with these financial instruments in order to utilize them effectively.