Many things could go wrong! I am going to touch only on a couple. First, Coinbase might never IPO. Then the contract would be closed at a $8bn market cap. (10/)
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The current price of $60bn market cap definitely seems to imply a very low probability of no IPO... 🤔 (11/)
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Second thing that could go wrong: FTX's users could collectively open contracts that would require CM-Equity to purchase more than 100% of Coinbase. (Ok, a bit theoretical but what can I say? I like theoretical questions.) (12/)
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In theory this could even happen at very low prices! Futures do not have the scarcity feature that stocks have. There could be 1 billion contracts open at a valuation of $2.5m ($0.01 / contract, or a notional open interest of $10m). (13/)
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This theoretical scenario is actually contemplated in the FTX doc (linked further below). They will limit the notional open interest "to the equivalent of $250m", which I _think_ means $250m/$8bn (the default settlement market cap) = 3.125% of Coinbase. (14/)
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Third thing that could go wrong: the "1:1 backing" after the contract transitions to a FTX-stock. This concern applies generally to all FTX-stocks. "1:1 backing" is an issue familiar to the cryptocrowd (👀 tether). I will just post the relevant bit from the FTX docs: (15/)
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By the way, one doc says FTX-stocks are redeemable and another says they aren't? (16/)
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I will stop here. Many other things could go wrong. The docs are about 100x shorter than other financial products that are about 100x simpler. FTX has discretion over MANY things, incl. early termination, various details (how is "market cap" defined exactly?), etc. (17/)
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Stay safe out there!
Refs:
ftx.com/trade/CBSE/USD
ftx.com/equities_terms
ftx.com/equities_terms
help.ftx.com/hc/en-us/artic
ftx.com/equities_terms
(18/18)
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And hopefully someone will correct me where I am wrong! cc
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It's a messy product!
Nothing you said is clearly wrong.
It'll settle to the obvious thing if nothing goes wrong. If coinbase fails to list, $8b.
The normal ones do entitle 1:1 ownership of the underlying stock; these re-IPO things can't quite as those don't exist yet.
The Key Information Document for FTX-stocks says "purchasers of the Fractional Stocks & Fractional Shares have no claim to delivery of the Underlying asset" - what is this referring to if not redeemability?
ftx.com/equities_terms
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See help.ftx.com/hc/en-us/artic
There's a different between "claim to deliver" and "redeemability"; they can be redeemed 1:1 with CM-Equity but not delivered on FTX.
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