Filecoin futures chaos: stand-alone currency, unclear delivery rules, no guarantee of redemption

Author | indiGO

The Filecoin mainnet is about to be launched, and investors who want to seize the opportunity are ready to try it out.

Mining machines are too complicated to understand, cloud computing has too many pitfalls and I’m afraid of being cheated, futures have no support and I’m afraid of collapse, the “wealth train” is roaring towards me, I want to get on it, but I don’t know what the correct posture is?

In order to answer readers' questions about Filecoin, especially those related to investment, Deepchain Finance has launched a special column "Breaking Through the Filecoin Investment Mist", hoping to help everyone understand Filecoin investment and identify the opportunities and risks therein.

This article is the first article in this special topic: Filecoin futures.

Without further ado, let’s get straight to the point. This article will explain to you the “four pitfalls” of FIL futures investment.

"The FIL futures you purchased are all "stand-alone coins""

Although the token named "FIL" was launched on the exchange in 2017, there is no real FIL token on the market because the Filecoin mainnet has not been launched and the official ERC20 token has not been launched.

FIL in all trading platforms can be said to be a "stand-alone coin" within the platform.

The market situation of FIL on the “stand-alone version” of SFEX trading platform

"Stand-alone coin" means that currently these futures are all traded in centralized exchanges. Users can buy and sell them, but they cannot recharge or withdraw funds or conduct arbitrage operations across platforms.

Although it is a "stand-alone coin", due to the popularity of Filecoin, FIL futures are still attracting much attention from the market.

When it was first launched, the price rose from US$11 to around US$27 in just one month. However, due to the very slow progress of the Filecoin project in the first half of 2018 and the overall environment, the FIL futures price began to decline after soaring at the beginning of 2018.

Annual data of FIL futures prices

In the second half of 2018, FIL futures prices experienced a rebound due to the impact of the expected launch of the Filecoin mainnet. However, as the mainnet launch was postponed again and again, the futures price also fell, falling to a minimum of $2.58.

The average price of FIL futures has rebounded after opening high and falling since its launch in 2017 Source: Feixiaohao

Since June this year, FIL futures prices have hit a two-year high, stimulated by the news that the mainnet is about to be launched. According to Feixiaohao data, FIL futures prices have risen by 241.99% in the past three months.

According to statistics, at least 52 trading platforms have launched FIL trading pairs, such as Gate.io, C-net and BiKi.

"FIL futures prices vary, cheap does not necessarily mean cost-effective"

When buying FIL futures, you can’t help but look at the price, but if you compare prices from three different stores, you’ll find that the prices vary widely.

Taking FIL6 as an example, the prices of BiKi and LBank are twice as different.

The price of FIL6 on the two trading platforms is twice as much

Why? Why is the price of FIL different on each exchange? For investors who are holding on to their money and waiting, are expensive FIL futures guaranteed?

Theoretically, there are two factors that affect the difference in futures prices in the market:

The first is that the buying and selling behavior in the market leads to price differences. The transaction data of each trading platform is different, and users cannot deposit and withdraw coins or perform arbitrage operations, so there is a price difference.

The second is that the initial pricing of FIL futures on various trading platforms is different, which directly affects the subsequent price fluctuation range of FIL futures.

DeepChain learned from an interview that the current listing prices of most FIL futures on the market are based on the prices of the earliest trading platforms that launched FIL futures, such as Gate.io.

For example, C.net’s pricing was based on the price of FIL on Gate.io, while BiKi Exchange offered subscriptions to users at 20% off the average price of FIL on Gate.io and other exchanges.

LBank stated that it obtained the quota through Coinlist and released it to users for fundraising, and opened transactions according to the user's fundraising price, that is, it opened transactions based on the (fundraising) cost price of obtaining FIL tokens.

For investors, are futures with high prices more reliable and those with low prices unreliable?

The answer is also no.

First of all, investors need to see clearly which FIL futures category they are purchasing, whether it is FIL6, FIL12, or FIL36. According to the release model of FIL tokens, the sooner you can deliver and obtain the main network tokens, the more cost-effective it is.

The reason is simple, because early tokens are scarce and the prices are relatively high.

So don’t be happy just because the FIL36 you bought is several times cheaper than FIL6. By the time you make delivery, the price of the currency may have fallen to a shattered level.

In addition, even if the same type of FIL futures is priced high on a certain platform, it does not mean that the platform is reliable or recognized by users. Because currently all trading platforms use internal stand-alone data, data such as 24-hour trading volume and turnover rate can also be easily refreshed.

Rather than caring about the price of FIL futures, investors should be more concerned about whether the FIL futures you are about to buy or have already bought can be redeemed after the mainnet is launched, and when they will be redeemed.

"The delivery time of FIL futures is very vague"

When you buy a coin, you should at least know when you can get it, right?

If you bought FIL futures, I'm sorry, you don't deserve to know this information.

Why do you say that? In the current trading platforms, FIL futures are mainly divided into four types: FIL1, FIL3, FIL6, FIL12 and FIL36.

I know FIL, but what do the numbers 1, 3, 6, 12, and 36 mean?

For traditional futures, the number generally represents the delivery date. But in FIL futures, there are different interpretations of the number "6".

Some exchanges interpret "6" as providing linear redemption for users within 6 months after the mainnet is launched, such as BKEX.

FIL futures "rules" announced by BKEX exchange

Some refer to a lock-up period of half a year, but the specific time of unlocking is unknown, such as LBank.

LBank Exchange’s explanation on FIL futures

There are also exchanges that directly interpret FIL futures as options, such as TOKOK.

TOKOK Exchange directly interprets FIL futures as "options"

Of course, what’s more, the exchange doesn’t provide any explanation at all.

PS: Everyone is copying each other's homework, and no one is willing to write a detailed, open and transparent announcement.

Therefore, for investors, if you buy FIL6, you will face a problem: you will never know whether your futures will be delivered on a certain day in the sixth month after the mainnet is launched? Or will it be delivered within 6 months after the mainnet is launched? Or will it start to be delivered linearly in the sixth month after the mainnet is launched?

Therefore, there is also a huge risk hidden here. In the future, there will be conflicts and disagreements between investors who purchase futures and platforms that launch futures on the delivery date.

Of course, the platform will generally say "the final right of interpretation belongs to the platform", you know.

"Can your FIL really be redeemed?"

Since it is a futures contract, it means that when the contract expires, users who legally purchase futures can exchange them for spot withdrawals. Correspondingly, the trading platform that launches FIL futures should also have a corresponding number of FIL tokens sold as reserves.

However, are there really so many trading platforms that can redeem FIL after the mainnet goes online at the end of August?

At present, there are three sources of FIL futures redemption on major trading platforms:

The first is that the trading platform itself participates in the primary market investment of FIL. In short, the exchange itself has a quota of FIL.

A picture leaked online showing LBank subscribing to FIL through Coinlist in 2017

The second way is that the trading platform obtains the quota from investors participating in FIL primary market investment in the form of purchase or cooperation as a guarantee of repayment.

The third type is that the trading platform itself or cooperates with large miners to deploy mining machines or cloud computing power, etc. After the main network is launched, the output of mining is used as a guarantee for redemption.

Of course, there is another possibility, that is, the trading platform does not have a future redemption source for FIL futures, then the FIL futures launched on such platforms will be subject to huge risks.

Platforms that launch FIL futures and clarify the source of redemption

DeepChain’s investigation found that among the 52 trading platforms included in the statistics, only 18 platforms have clearly defined the delivery cycle of FIL.

Among these 18 companies, only 9 made it clear that the FIL they sold came from early ICO investments; 3 claimed to have Filecoin mining farms or mining pools behind them; and 3 were busy launching Filecoin computing power products to pave the way for later supply.

The remaining trading platforms have not disclosed the source of the delivered FIL.

In 2017, Filecoin launched ICO fundraising. According to the release rules given by Filecoin officials:

Miners: 70% (i.e. 1.4 billion), released linearly through block rewards, halved every 6 years;

Team: 15% (i.e. 300 million), as the R&D and operating expenses of the Protocol Labs team, released linearly over 6 years;

Investors: 10% (i.e. 200 million), allocated to investors participating in private and public offerings, and released linearly over 6-36 months;

Foundation: 5% (i.e. 100 million tokens), as the cost of long-term community construction, network management, etc., to be released linearly over 6 years;

Release rate of FIL tokens

If calculated based on a 6-month cycle, the foundation will release approximately 8.33 million tokens in 6 months, early investors will release approximately 33.33 million tokens in 6 months, and the founding team will release approximately 25 million tokens in 6 months.

Calculated based on the linear decreasing release of mining, the mining release in 6 months is about 80 million. However, based on the actual situation and economic model, the tradable FIL tokens generated by miners in 6 months of mining will be far less than 80 million.

Because, according to the mining rules, storage miners, who account for the majority, must also use FIL tokens proportional to the storage space to mortgage their hard disk space.

For example, using 1T of space for storage requires 1 FIL token as collateral, because storage miners must commit to completing the task of storing customer data within a certain time frame, and then generate a proof of time and space and submit it to the blockchain network to prove that they have been storing data.

Therefore, it can be calculated from statistics that the release of FIL tokens in 6 months is about 150 million.

However, if we look at public information, we can find that the current number of FIL6 futures on the exchange has exceeded the 6-month release of the FIL mainnet currency.

Judging from the data alone, the FIL futures on the trading platform are destined to not be fully redeemed after the mainnet goes online.

FIL futures issuance volume on trading platforms based on public information and interview data

Of course, there may not be too many users who really want to redeem futures for spot, because the FIL futures that have been launched may only have been sold in part and are not saturated. There is also a high probability that the public data such as the trading volume of each platform are "artificial data" that are "poured from the left hand to the right hand."

In the view of industry insiders, after the launch of the Filecoin mainnet, FIL tokens will enter the market circulation, and when the FIL data of all exchanges tends to be unified, once there is a situation where repayment cannot be made, investors will most likely suffer losses:

The platform may raise the futures price before the token is released, and then invest to bring the price down before the delivery date. When the delivery is made, a large number of users sell at a loss and leave the market. The platform buys the token at a low price, pays some users and earns the difference.

If all payments still cannot be made, the platform may seek OTC from miners to collect coins and redeem them to users.

For investors, the worst case scenario is that the exchange does not make repayments, and the single-machine FIL in the hands of investors plummets or even returns to zero, which may not be uncommon in the future.

If you really want to buy futures, as an investor, you first need to choose a strong and trustworthy trading platform, so that the probability of you encountering risks will be relatively small; secondly, you must be clear whether the exchange that is launching FIL futures has the ability to pay.

Finally, DeepChain reminds you that investment is risky and you should be cautious when entering the market.