An offshore exchange is trialing futures contracts for yet-to-launch tokens, pitching ‘IFOs’ as the next trend

Quick Take

  • Crypto exchange CoinFLEX has rolled out physically delivered futures contracts for Polkadot, a yet-to-launch blockchain interoperability project 
  • CoinFLEX, backed by the likes of Polychain and DCG and registered in Seychelles, also offers physically delivered futures for bitcoin (BTC), bitcoin cash (BCH) and ether (ETH)

Count this as one of the most meta derivative products to enter the crypto market this year: a future on a token that hasn’t launched. 

CoinFLEX, a Seychelles-based cryptocurrency derivatives exchange, announced the launch of the new product Tuesday as part of a broader offering dubbed “initial future opening,” a play on the myriad acronyms in crypto that end in “o” like ICO, IEO, and STO. 

The idea behind the new offering is to provide exposure to token projects that are fundraised via private sales. Prior to the launch of such projects, tokens are traded in the form of illiquid SAFTs. Indeed, CoinFLEX said Polkadot’s DOT token market is “extremely illiquid,” “entirely dark,” “entirely OTC” (over the counter), and that there is “zero transparency.” 

With the Polkadot IFO, CoinFLEX aims to solve these issues as these contracts are “over-margined on the short side,” meaning sellers have to post more margin than the value of Polkadot itself. “This protects the buyers as in any event where Polkadot moons, we’ve already collected extra funds from the seller to protect against them defaulting.”

Polkadot mainnet is expected to launch by year-end. The firm recently closed the private sale of 500,000 DOTs, at a $1.2 billion reported valuation.

IFOs also allows users to take a position either way, CoinFLEX said. “If you think it’s going to be the next best thing, buy some Polkadot futures. If you think it’s going to fail, short it.”

The exchange further said that it is planning to launch “a number of” such IFOs in the future.

CoinFLEX, a spin-out of UK-based Coinfloor, has struggled to eat into the volumes of other Asia-based derivatives marketplaces, including kingpin BitMEX. 

CoinFLEX is hoping that a diverse product suite will lure new traders to its platform over others with deeper liquidity. To that end, it is in the process of preparing to launch physically delivered futures for Binance’s native token BNB, Tron’s TRX and Bitfinex’s LEO tokens and expects these markets to be “very popular as a cash-settled instrument on these illiquid markets would be exceedingly dangerous.”

As for the IFO offering, some market participants noted that physically settled futures on margin present risk. 

“If you’re leveraged long with a physically delivered future, on the other side is someone who is leveraged short, and who knows if that person can deliver the physical settlement,” Darius Sit of trading firm QCP told The Block. 

B2C2 CEO Max Boonen said all products have their upside and downside. 

All products can be good or bad. One can think of reasonable use cases here (e.g. Polkadot developers looking to lock in future pay), although of course all derivatives can be used for speculation,” Boonen said in an email. 

Isabel Woodford and Yogita Khatri contributed to this report

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