Deep understanding of the "Oolong incident" of LedgerX futures: media misreading, LedgerX or suing CFTC

Earlier this week, it was reported that the US-regulated cryptographic derivatives and clearing platform LedgerX grabbed the first physical settlement of bitcoin futures contracts in the country before Bakkt and ErisX. However, the Commodity Futures Trading Commission (CFTC) quickly dismissed this claim, saying that LedgerX has not yet been officially approved by the agency.


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Now, an official LedgerX official told Cointelegraph that the media that first disclosed the news, CoinDesk, "misunderstood the scope of the product release," which led to a series of confusing reports. At the same time, the chief executive of the exchange issued a message on social media saying that it would sue CFTC, but LedgerX has not commented on it.

Cointelegraph contacted CoinDesk for a message from LedgerX and referred to a follow-up article by CoinDesk for a comprehensive analysis of the matter.

LedgerX's Omni platform launches options and swaps, but no futures

On July 31, CoinDesk reported that LedgerX officially launched the first physical settlement of bitcoin futures in the United States, and noted that the news was exclusively disclosed by CoinDesk. On the same day, LedgerX announced on the company's official website that it will launch the Omni trading platform, which will provide retail customers with "transaction of bitcoin, bitcoin options and futures" services. Omni is only available to customers in the US and Singapore with a minimum margin of $10,000 or 1 bitcoin (as of press time, a bitcoin price is approximately $11,600). This tweet that was subsequently deleted did not explicitly mention bitcoin futures, but wrote:

“Official news: Omni is online and we will offer retail deals! If you sign up for our waiting list, you will receive our news soon.”

On August 1st, LedgerX released a new tweet clarifying that Omni currently only offers spot and options trading, while futures products are "coming soon":

“Official news: Omni is online, we will offer retail transactions! Bitcoin spot and options trading is open to everyone (futures are coming soon @CFTC)! Thanks to all customers who are registered as waiting lists, you will receive us soon The news."

Now, LedgerX claims that CoinDesk misunderstood the company's exclusive information that was revealed to the media by phone before Omni was released. Judica Chou, LedgerX's chief operating officer, told Cointelegraph in an email: "We launched Omni, they just misunderstood the scope of the product release."

“We launched DCM (Designated Contract Market), which can include retail + options + swaps + futures. We only launched retail + options + swaps, but people think that futures should also be launched together."

In fact, in June of this year, CFTC officially approved LedgerX's application for a designated contract market license. Therefore, since June 24, 2019, LedgerX has been registered as a designated contract market (DCM). However, as the CFTC pointed out in the press release, the platform still needs to obtain a revised directive from its Derivatives Clearinghouse (DCO) license to continue to market futures products:

"LedgerX has requested the CFTC to revise its registration as a DCO to restrict Ledgerx from clearing its DCM-listed swap contracts and allowing them to liquidate futures contracts."

As CoinDesk reported in another article, LedgerX decided to do its best to introduce bitcoin despite the deadline for its DCO revision (the regulator has 180 days to approve or reject the DCO application under the CFTC regulations). Futures products. In the report, CoinDesk quoted Juthica Chou as saying:

"We submitted the revised application on November 8, 2018. It has been more than 180 days now. We don't know why this is [not yet approved]."

The article believes that this makes the company believe that it is clear that it can continue to work hard to launch futures. However, CoinDesk's report quoted an unnamed "senior" official of the CFTC as saying that LedgerX still needs explicit approval from financial regulators to launch Bitcoin futures products:

“Each new or revised DCO application must be explicitly approved by the committee. […] Failure to make a decision means no approval, and entity self-certification will not work.”

Another blockbuster news media, The Block, also quoted a CFTC spokesperson as saying that LedgerX did not have the necessary DCO license to trade futures products because the company is currently only approved to liquidate swaps, not futures. Juthica Chou confirmed to Cointelegraph:

“Our current products have a large retail demand, and when we get the DCO revision for liquidation, we will add futures products.

We have been in close communication with the CFTC. We currently have three licenses, one is SEF (swap executive license), which allows us to list options and swaps; the other is DCM, which allows us to list options, swaps, and futures products; DCO, a product that allows us to liquidate options and swaps. We are awaiting revision of the DCO so that we can liquidate options, swaps and futures products at the same time.

PR company terminates cooperation with LedgerX, LedgerX CEO said it is considering suing CFTC

After LedgerX’s failure to introduce Bitcoin futures products became clear, Ryan Gorman, founder of RGPR, a public relations firm with LedgerX, wrote on Twitter that “because of concerns about the events of the past 24 hours,” his company The cooperation with LedgerX has been terminated. Cointelegraph contacted RGPR and hoped that it could make further comments, but has not received any response. As of press time, LedgerX still appears on the company's website list.

In addition, after the publication of the above CoinDesk article, LedgerX CEO Paul Chou announced in the Twitter comment area that the company is considering taking legal action against the CFTC for reasons such as “anti-competitive behavior”, “violation of duties” and “violation of registration regulations”. . Paul Chou added:

"If the government does not do the right thing, we will sue them. We have already talked to the lawyer."

Although LedgerX answered a series of questions from Cointelegraph, he always kept a close eye on the issue of the CEO's tweet. However, Paul Chou's tweets have resonated with community members, such as Michael Poutre, managing partner of Terraform Capital, who revealed his experience in dealing with US regulators to CoinTelegraph:

“We understand that the US government is not only slow-moving, but also harms American companies that are actively cooperating with the government. These companies help the government understand and obtain information when dealing with blockchain and cryptocurrency-related activities and regulations. responsibility.

When I operated The Crypto, we learned from CNBC that our stock has been suspended. The SEC never informed us that we never asked for documents from us and did not respond within five months. When we talked to the SEC staff, they barely knew who we were.

The importance of physical delivery of bitcoin futures

In essence, futures are agreements that buy and sell assets at a specific price on a specific future date. They represent a risk management tool that can be particularly useful in volatile markets such as cryptocurrencies. However, for digital currencies, this is not a completely new concept. Since December 2017, Bitcoin futures have been on the two major US regulated exchanges, the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE). Trading.

A distinguishing feature of physical settlement of bitcoin futures is that once the contract expires, the customer receives a bitcoin token instead of cash. Martin Weiss and Juan Villaverde of Weiss Ratings explained to Cointelegraph in an email:

“If your goal is to lock in the price of future purchases of real assets, bitcoin futures for physical settlement is a better option. You pay the deposit purchase contract first. When it expires, you pay the balance and receive the actual Bitcoin token. In contrast, if the contract is settled in cash, the whole process is much more complicated."

Weiss and Villaverde added:

“First, even after settlement, you need to go to another exchange to buy bitcoin. Secondly, during this period, the bitcoin price you pay may be much higher (especially in a bull market with high volatility). Most importantly, if you are a large institutional investor and invest a lot of money, it may not be easy to get the required amount of bitcoin. In fact, all of this violates the original intention of buying a futures contract. Therefore, the cash settlement contract Primarily for speculators who do not have actual assets."

eToro senior market analyst Mati Greenspan said that in fact, physical delivery of futures may contribute to the overall trading volume of the market and the overall economy. He told Cointelegraph:

“The physical settlement of Bitcoin futures will open the door for more participants in the market, especially in institutional investors. It will definitely have a significant impact on the volume and price.”

Despite this, the introduction of such products has been very slow, and there are still no physical settlement of bitcoin futures in the US market, although some regulated exchanges like Bakkt and ErisX have been working on this. Jose Llisterri, co-founder and chief product officer of Interdax, told Cointelegraph:

“Many teams in the field are trying to launch regulated products, but find the process extremely slow and cumbersome. Bakkt parent companies Intercontinental Exchange (ICE) and LedgerX are currently working in this area in the US, but several other jurisdictions There are also companies that are doing the same.

"The amount of work that needs to be done to launch these products is very large. If successful, it will have a very positive impact on the encryption field. But this far process is very simple or easy to complete, and may even enter a dead end." Therefore, the situation of LedgerX seems to indicate that although the relationship between cryptocurrency participants and US regulators is not very harmonious, it is constantly strengthening. At the same time, industry participants continue to call on legislators to develop clearer guidelines in the United States and to shift operations to other jurisdictions due to regulatory gaps.