LedgerX Could Launch Physically Settled Bitcoin Futures Contracts Ahead of Bakkt

News and Analysis

LedgerX, a crypto derivatives provider, is planning to become the first U.S. company to offer physically settled Bitcoin futures contracts. Should they succeed in getting this license, then the firm will beat Bakkt to the first place, another company that has been trying to offer the same product for a while now.

LedgerX announced on Monday, April 16, that it had filed for a designated contract market (DCM) license that allows the firm to offer the product to its customers. Physically settled Bitcoin futures contracts differ from cash-settled Bitcoin futures in that at the end of the contract customers are supposed to receive the actual bitcoins that underlines a contract instead of their U.S. dollar equivalent.

“We’ll be able to service customers of any size, we won’t be restricted to [institutional clients],” Juthica Chou, chief risk and operating officer at LedgerX, told CoinDesk.

Once approved, LedgerX will offer Bitcoin, Bitcoin options and Bitcoin futures to retail customers through Omni, a new platform the company has launched earlier this month.

Omni, built on the company’s existing infrastructure, will act as the provider for both custody and trading services. LedgerX’s original platform first received regulatory approval to launch in July 2017, though the platform itself only went live later that year.

The company first began offering physically-settled derivatives products in October 2017, trading $1 million in its first week.

Omni will also utilize LedgerX’s existing institutional liquidity pool to “offer retail customers a top tier experience from day one,” Chou said.

The company filed for a license to offer futures contracts in November 2018, and has been engaged in a “constructive dialogue” with the CFTC since, Chou said. However, she could not comment on a timeline for when the CFTC might approve LedgerX’s application, or on what sort of reception the firm is expecting from customers.

The CFTC has already granted LedgerX two licenses, allowing the firm to act as a Swap Execution Facility (SEF), which is the company’s exchange platform, and a Derivatives Clearing Organization (DCO), which is the clearinghouse.

LedgerX’s DCM application is therefore just an additional license on top of its existing permissions. Operationally, the company is already set up to provide futures services, according to Chou.

“We’re custodying [Bitcoin] in the same way that we currently do, we’ve obviously been live and operational for more than a year and a half, and we have a license from the CFTC, the DCO license, that allows us to custody Bitcoin,” said Chou.

Several major firms plan to launch physically-settled Bitcoin futures contracts as well, including Bakkt, the firm built by New York Stock Exchange parent Intercontinental Exchange; Seed CX, the crypto exchange backed by Bain Capital Ventures; and ErisX, a startup backed by brokerage TD Ameritrade. However, while all of them are too awaiting their own regulatory approvals, LedgerX could eventually become the first to go live with an actual product.

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