What Happens at Expiration?

On July 19th, the sBTC and LBTC will expire for the first time — 28 days after the initial launch. We’ve seen almost 300 trades since the tokens first opened for minting. Thank you to everyone who traded!

Expiration can happen in two different ways. The first which most people are used to is time-based. sBTC and LBTC expire every 28 days. Alternatively, we settle if the reference asset breaches the Price Cap or Price Floor.

We will use formulas introduced in our pricing and trading posts in the following explanations.

Let’s use the current BTC/DAI token with:

Price Cap = $7,000

Price Floor = $14,000

Expiration 7/19

Time-Based Settlement:

Position tokens include an expiration. When a Position Token reaches expiration we use an oracle to bring price data onto the Ethereum blockchain and settle that contract. Any Position Tokens between now and expiration all expire on the same date regardless of when minted within the expiration cycle.

We use CoinCap (a ShapeShift site) to grab a 70+point exchange index for the price of Bitcoin which sets the settlement price for sBTC and LBTC.

For example, say after 28 days the price of BTC/DAI is $9,500.

This means the value of the long position token is $2,500 ($9500 — $7000) and the short Position Token is $4,500 ($14,000 — $9,500).

In this example, both LBTC and sBTC have value.

Tokens are submitted to the smart contract for a return of collateral.

Band Breach Settlement:

Next, let’s talk about expiration due to a band breach. MARKET Protocol Position Tokens have a Price Cap and a Price Floor defined ahead of time. If the reference asset trades above or below one of these price bands it goes to settlement. Review the pricing post for more info.

BTC/USD goes from $9,000 to $6,000

PRICE LONG TOKEN = $0

For a long position, If the price of the reference asset goes below the Price Floor the long position is worthless (maximum downside), in this case, $6,000 (CURRENT PRICE) < $7,000 (Price Floor).

This Position Token goes to settlement for all LBTC and sBTC tokens. The longs receive their maximum loss and are worth $0. The shorts their maximum gain and worth (Price Cap — Price Floor) or $7,000.

Tokens are submitted to the smart contract for a return of collateral.

Redemption:

Prior to expiration sBTC and LBTC can only be redeemed for a return of collateral as a pair. After expiration, sBTC and LBTC can be redeemed individually.

Redemption is easy and done through our minting and redemption platform — Polymer.