-The FTR Team is in place to issue new contracts, market make these contracts, as well as manage the underlying risks associated with creating the positions necessary to offer these products.
-Each contract represents a tokenized position that is built on the corresponding Centralized Exchange (CEX) or Decentralized Exchange (DEX) as soon as the buyer purchases the contract from the market.
-The Future team employs multiple strategies to achieve the yields desired representing the different contracts offered, each contract will vary based on the market & exchange the strategy is employed on (for example we may offer 2 futures contracts, 4 fixed rate contracts with different maturities & 1 interest rate swap )
-FUTURE offers Futures (long-only), Fixed rate contracts & Interest rate swaps on a decentralized marketplace powered by Serum & Solana.
-To align the interests of the FTR token and the products issued by the FTR Team, when a product is bought by a trader/investor, a small amount of FTR is purchased at market and locked into each product until maturity.
FUTURE (FTR) TOKEN USE CASE
During our years of experience in traditional finance and crypto markets, we have observed that the crypto currency world has been offering floating (ie dollar funding on exchanges) and fixed rate (extracted via a classic cash and carry strategy) that are radically different from the rates we see in legacy finance, opportunity has been found.
Why most traders cant perform these trades on their own/ why is this opportunity available?
Lets start with some finance background:
What is a future contract : if you buy a future 31/12/21 BTC at 65K USD (1BTC notional), this contracts gives you the right and the obligation to buy 1 BTC, at 65K USD, on the 31/12. No matter what the price of BTC is (100K or 1KUSD), you will always have the right and obligation to buy your BTC at 65K USD. Future contracts do not imply that there is a leverage. Future contract do not have a funding cost, no funding rate, no intermediary USD flow between the purchase of the contract and its delivery at maturity.
Discussing rates and Futures :
Floating Rate (= Funding) : Lets say we have a 0.05% funding rate on bybit : This rate is applied every 8H. After actualization, the Yearly rate applied is 130% (=1.0005^(3*30*12) -1 in google). This means that anyone who is longing on leverage>1 is therefore borrowing USD (synthetic) to bybit at a 70% annualized rate. These 0.05%/8h growing to 70%/year come from the fact that the actualization process is performed every 8H, ie 1080 times in a year. A lot of people are longing on margin, meaning alot of market participants are borrowing US dollars in the market, and therefore, the USD borrowing rate increases. Rates can increase upwards to 70%, everyone believes USD is cheap to borrow as the 8h rate looks low. Most of the exchanges are practicing « high frequency » capitalization rate (every 8H)
Fixed rate (extracted from Futures, cash and carry strategy): The future markets reflect these high USD borrow rates (no arbitrage opportunity) and this is why we can find a spot price for BTC at 56500 with a future price at 64300 for 31/12/21 ie 13% between today, 04/05 and the end of the year. This leads to a 25% annualized rate. When you extract the yield offered by these differences between spot price and future price, you are in fact offering USD to the market, holding a 0 delta position (AT MATURITY) against BTC, and gaining everyday a share of the 13% spread you locked when entering the position. We started to take advantage of these rates for our own money and thought it would be much more appealing for people (especially crypto people) to buy a product that provides a yield, versus building a position and getting to know the definition of a Future contract
- Future contracts : We set up a bot on Binance for example. The bot will be listening to the Serum market as well. When someone buys one of our product on Serum, the bot on Binance automatically hedges the position
- Fixed rate contracts: We’ll be searching, on a bi weekly basis, for the cheapest rate to deliver in the environment. We’ll then open the position (no delta position) and we’ll sell the tokenized position on DEX.
- Fixed/Floatig rates swaps : The idea is to have a 100 USD notional paying floating rate and receiving a fixed rate. We will be able to do this by opening a leveraged position on a cex (producing funding = floating rate) and hedging the resulting exposure with a future (providing a fixed rate)
Future contracts are currently not available at all on DEX and represent a multi million dollar notional market (much more if we look at the daily volume reported on centralized exchanges). The fixed interest and swap market are the biggest financial markets on earth and the whole crypto currency ecosystem is working with floating rates, which represents a huge amount of notional to hedge using our products. We also plan to build more complex, but very classical products like auto call. The idea is to be able to create a whole rate market within 6 months (Zero coupon curves, swaps curve). We will offer a bid ask liquidity for every product we issue so clients eager to exit contracts before the delivery date
- Scarcity : The FTR token can be seen as a right for the holder to give us capital to manage if he wants to. When the FUTURE team will sell FTR token, we are in fact selling a management capacity. There is currently 1 million FTR issued. It is supposed to match a 3.5M USD maximum AUM. We expect to reach that target within the end of June.
- Distributions: The distribution occurred as follow :
- FTR locked for the team: Starting from the 01/01/22 of July, the team's tokens unlock linearly over 3 years
- Strategy for the remaining 54% : We currently have capital to open CEX position and sell them on DEX. That way, we expect people buying our product, buying the FTR token that has to be held when using our product, and therefore offering us fresh capital to open new CEX position and sell them on DEX. We do not plan to market sell any token. Also, we will not sell 1 FTR (= the price to be able to give us capital to manage) the same price if we have 300K USD AUM and 2.5M USD AUM as it is marginally more costly to manage 100 USD. Therefore 50% of supply is basically "floating" based on the open interest managed by the FUTURE team
- Potential other issuance: The market cap is not fixed as the amount of FTR issued should match a management capacity on our end. Therefore, if we find new uncorrelated products to issue, we will be able to manage more capital and therefore we might decide to issue more tokens. Just like in stock markets, FTR holders won’t be penalized by any potential dilution as they will get rights to get the potentially newly issued FTR. The FUTURE team will not issue more tokens if the maximum targeted AUM (3.5M USD) is not reached. The team will not be able to issue more tokens without the FTR holders consent. Every FTR issuance will be authorized through an onchain vote. The team wont discuss this question before July 2022
- Profit generation and sharing : For the first generation of issued contracts, we will set the pricing settings in a conservative way. The idea is to provide a viable product from a pricing point of view, while not putting at risk the user’s capital because of execution inefficiencies and frictions. Because of the market risk we have to manage, we plan to offer 1 to 3% bid ask on our products on DEX and we will try to match as much volume as possible doing limit orders, allowing to claim a maker fee. We also have a fee implemented in our pricing.
This should lead to a positive P&L for the FUTURE team. The team is never supposed to take directional exposure. Nevertheless the team will have the possibility to exit positions earlier than anticipated if it is opportunistically interesting to do so for the tokenized position holder
During the next 3 months, the team will focus on creating markets on DEXs and develop the products and the community. As soon as a future contract market is live on DEXs and that the secondary market for this decentralized future contract is well established, we will be able to run operations in a more decentralized way, using smart contracts and pools concepts available on the Solana blockchain to run the fixed rate and the swap contract through smart contracts products. In the meantime, every operation will remain centralized, as we still have to rely on CEX to get our future contract position.