FRNT’s recent announcement that they had secured funding from CoinGeek founder Calvin Ayre introduced a new powerful, institutional focused fiat-settled cryptocurrency derivative platform to the world of Bitcoin SV (BSV). To learn more about the company, we reached out to Stéphane Ouellette, CEO of FRNT.
We asked the CEO, before anything else, about the innovations FRNT is bringing to the investment world. “The only fiat-settled crypto derivatives product that is widely available for institutional investors in North America and beyond is the CME BTC future,” Ouellette began with. “While this product has undoubtedly been successful (averaged over USD ~500M notional in volume/day in May) it really has no peer for single-coin exposure on a slew of other cryptocurrencies including Bitcoin SV (BSV).”
Ouellette then went on to explain what this means for institutional investors. “Essentially what the CME Bitcoin Future allows is for institutions that may not legally or operationally be able to buy/sell crypto assets to purchase a derivative that settles and operates in a framework they are comfortable with,” he said. “It is our thesis that the fiat-settled derivatives toolkit could use an enormous amount of more development. In our early roadmap, in addition to unique single-coin Synthetic Exposure Mechanisms (SEMs), we plan to offer products on composite indices, themed indices and different spread products that will allow institutional investors an opportunity to participate in the space like never before.”
We wanted to know more about Synthetic Exposure Mechanisms (SEMs), the derivative type that FRNT offers, and how it differs from what investors might be used to. “Our SEMs are based on traditional Contract For Difference (CFD) derivatives but targeted towards institutional and accredited investors,” he replied. “CFDs essentially allow two parties to take opposing exposures on a particular index. In the oil market, for example, a CFD product may track the price of WTI crude. In this case, none of the parties will actually own and take delivery of the crude but the long party owes the short if the price dips below the initial level where the contract was struck and vice versa.”
The innovation here is that CFDs are targeted to retail investors, but FRNT sees a market for them in institutional investment as well. “We believe that, contrary to what the derivative has been utilized for historically, they provide an elegant solution for institutional investors to get exposure to the asset class but not have to take actual delivery of the physical crypto which involves a variety of different frictions,” Ouellette explained. “In fact, Fidelity recently hired Greenwich Associates to conduct a survey which suggested 72% of institutional investors would prefer an investment product that gave them exposure to crypto. This greatly beat out the other options of holding physical crypto or investing in crypto companies. The SEM platform, or SEM Trade as we call it, will be the first that allows them to conduct these types of operations on a broad scale and in a way they are familiar with.”
Ouellette believes that by with a lack of institutional investment the last time cryptocurrency markets reached all-time highs, retail investors created uncontrollable volatility. “The last wave of crypto participation was almost exclusively retail driven,” he noted. “While the wave introduced many to the idea of cryptocurrency and held a lot of positives, the lack of institutional participation left the asset class more volatile than it otherwise would have been.”
The solution to this is in financial institutions. By bringing them into crypto investing, many of the flaws of crypto markets will be ironed out. “In traditional markets, institutions police market inefficiencies and ultimately serve to dampen volatility,” he told us. “Without those kinds of participants, the asset class is much more vulnerable to the kinds of wild swings and price discrepancies that make it more difficult for the dream of a crypto-based financial system to become a reality. Furthermore, a lack of institutional participation leaves the whole ecosystem more vulnerable to bad actors. Ultimately, there are many reasons why institutional participation is a benefit, I’m just naming some.”
The recent successes of BSV made it an obvious choice for FRNT as a derivative product for their platform. “FRNT follows objective criteria when deciding what products to include in its suite,” Ouellette explained. He concluded by explaining how BSV meets that criteria:
“The first is perceived client demand. I think one needs to look no further than the volumes and the price activity over the last month to see that, that box was easily checked.
“The second would be sustainability in the level of interest/ecosystem. This is so as to not include a fringe coin that may be a flash in the pan and will go away in the blink of an eye. The BSV ecosystem meets the second criteria with flying colours. It has one of, if not the best, financed development pipelines in the space and is already a Top 10 currency by market capitalization. This without even mentioning the slew of projects that have announced their intention to build on BSV already this year.”
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