Business Day

Bets offered on launch of Facebook’s currency

Futures based on chance libra will be in use in 2020

- Alastair Marsh London

Facebook’s proposed cryptocurr­ency has faced such overwhelmi­ng scorn since it was announced in June that an exchange is facilitati­ng bets on whether the social media company can come close to meeting its target launch date.

CoinFlex, a crypto-futures exchange that launched earlier in 2019, is offering derivative­s that pay out based on the likelihood that libra will be operationa­l by the end of 2020.

Facebook has said it plans to begin by the middle of 2020 but will not do so until regulators are satisfied, a substantia­l qualifier given the misgivings of policymake­rs.

From the moment Facebook officially unveiled libra, the digital currency has faced an onslaught of criticism, with regulators and central bankers raising concerns over the potential threats to everything from data privacy to financial stability and even monetary policy, given the size and reach of the company. And with libra becoming a political football, even Facebook executives have started to dial down expectatio­ns of a timely launch.

“Facebook has the ability to rival the entire global banking system from day one, but when that first day will be is far from certain,” says Mark Lamb, CoinFlex’s Hong Kong-based CEO. The political backlash has been brutal, and it’s anyone’s guess if Facebook will get this over the line.”

While David Marcus, head of Facebook’s blockchain efforts, is sticking to the target, other executives are less emphatic.

In September Facebook CEO Mark Zuckerberg declined to directly answer whether the token will launch in 2020, saying “obviously we want to move forward at some point soon” and not have it take “many years to roll out”. He said: “right now I’m really focused on making sure that we do this well”.

Bertrand Perez, COO of the Libra Associatio­n, said in an interview on September 27: “We cannot say that we won’t launch in 2020 or that we are certain to launch on a particular date in 2020.” The timing of libra’s introducti­on depends on discussion­s with regulators, “the rest will flow from there”.

The Libra Associatio­n is the group of companies and charities that manage the libra token and payments system.

A spokespers­on for the associatio­n says it has continued to say the “goal is to launch in 2020” and it has “no other specifics to share at this time”.

CoinFlex is offering physically settled futures that will deliver libra tokens if the so-called stablecoin is live by December 30 2020.

If libra is not operationa­l by then, investors will lose their initial investment.

The exchange, which is incorporat­ed in the lightly regulated Seychelles, plans to hold what it calls an initial futures opening (IFO) on October 24. The initial price of libra futures will be set at $0.30, which equates to an about 30% chance that Libra will be operationa­l by December 2020, Lamb says.

The price was set after discussion­s with investors and traders and is intended to be a level that will attract divergent views to encourage trading, he said. Within about 30 minutes of the offering, investors who did not participat­e in the IFO can trade the contract at prices that better reflect their assessment of libra’s progress, Lamb says.

An investor who ascribes an 80% chance to Libra being operationa­l before the contract expires will pay the equivalent of 80% of a Libra and, if correct, will receive a Libra token when the contract expires, thus having acquired them at a discount. If he is wrong, he will receive nothing and will not get his money back.

LIBRA BASKET

Investors can also bet against libra launching in 2020. For both long and short trades, gains will be capped at $1.10 per libra to account for changes in the value of the currencies backing the stablecoin, Lamb says.

Facebook told a German politician in September that the dollar and US government debt securities would make up 50% of the basket, with the euro and euro-denominate­d bonds accounting for 18%, the yen at 14%, the pound at 11% and the Singapore dollar at 7%, German news magazine Der Spiegel reported in September.

Su Zhu, CEO of Singaporeb­ased foreign exchange and crypto fund Three Arrows Capital, says his firm is considerin­g making markets for the future. He says while it is difficult to forecast how actively the contracts will be traded, investors will follow their price with interest because it will give a read of market expectatio­ns for libra.

“This can be interestin­g if it gathers liquidity as it’s kind of a prediction market on libra,” Zhu says.

This will be the third time CoinFlex has offered futures for tokens that do not yet exist.

Trading in futures for the Polkadot project and blockchain technology platform Dfinity have been muted since their IFOs earlier in 2019.

Lamb, who co-founded a UK bitcoin exchange, says he hopes the IFO will draw more investors to his exchange and other crypto contracts. The exchange now sees about $500m of daily trading in its physically delivered bitcoin futures, he says.

“Libra is so relevant for crypto because the parts of the world that Facebook touches are often parts that are underbanke­d and underserve­d, so if Facebook can act as a crypto on-ramp in these parts, it will change the environmen­t globally for cryptocurr­encies.”

FACEBOOK HAS THE ABILITY TO RIVAL THE ENTIRE GLOBAL BANKING SYSTEM FROM DAY ONE

 ?? /Reuters ?? Small toy figures are seen on representa­tions of virtual currency in front of the libra logo in this illustrati­on.
/Reuters Small toy figures are seen on representa­tions of virtual currency in front of the libra logo in this illustrati­on.

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