Pre-IPO Mirrored Assets [v2]

As previously discussed in this thread, we would like to allow the trading of Pre-IPO assets on the Mirror Protocol. Given the previous complexity of the original process, we propose a slightly modified version of the pre-IPO contracts.

Traditional IPO Mirror IPO
Estimated Price Range Published Mint at published price within minting period
SEC mandated quiet period (25 days) mPre-IPO Trading/LP
IPO mPre-IPO becomes mPost-IPO with new price feeds

We have essentially removed the ‘auctioning process’ that was originally proposed.

The user flow is explicitly,

  1. When the SEC published price range is out, a user can submit a governance proposal with the requisite pre-IPO and post-IPO parameters to be voted on (whitelisting process).
  2. Once the proposal passes, users are allowed to mint at the given price for a fixed period of time (minting period is decided by governance).
  3. Trading (in the same manner as the current AMM DEX) & pool/staking are all available.
  4. Once the IPO happens, the first trading price of the pre-specified oracle terra address will be used, and all parameters become the voted post-IPO parameters (migration from mPre-IPO → mPost-IPO).
  5. All minting related operations follow the current process with the new parameters post-IPO.

Technical Notes

  1. During the minting period, a fixed price (the governance-voted mint price) is voted. Once this mint period is over, price voting stops. This effectively means mint positions are not only non-openable, they are also non-closable during this time period.

Questions
Below are some questions that I would like to ask the community:

  1. It is also possible to entirely remove the fixed price & minting period by instead taking the price feed for pre-IPO assets from an exchange such as FTX. Advantages include probably lower collateral ratios, removal of the minting period, and perhaps even closer UI/X to the current minting process. Disadvantages include the fact that the FTX contracts are backed by a risk counterparty (a firm) and potentially unreliable price feeds. Which would you guys prefer?
  2. IPOs can be cancelled by the firm/underwriter. In the case of a cancellation, how should already minted pre-IPO assets and positions be handled. An option is to use the current migration feature to allow users to burn/sell their mPre-IPO asset at the voted fixed mint price. A second option is to completely share the burden and responsibility to those who hold the mPre-IPO positions (‘trade at your own risk’). I am curious about your thoughts on these two options or suggestions for different solutions.

For your reference:

4 Likes

Couldn’t we just allow pre-ipo contracts to trade with the FTX pre-ipo contracts as the oracle source?

What’s wrong with this approach

Personally have no big qualms about using the price source from there as mentioned above in #2 except perhaps it is based of the trading activity of a third-party contract.

How reliable is this oracle source though ?

I think we will need to use the FTX price for the Pre-IPO asset. Generally, on the day of the IPO the asset that IPOs has a large increase. This doesn’t always happen but I m thinking the pre-IPO assets that are going to be listed on MIR are going to be highly anticipated IPOs that will have a large bump. Therefore, there would be no incentive to mint a pre-IPO asset and take an immediate massive loss.

Also, there is no good way to come up with a pre-IPO price for an asset. If a user proposed a pre-IPO price that is unreasonable then there could be many competing proposals for the same pre-IPO asset with different prices. Based on the limited participation in governance I think this reduces the likelihood of any of the proposals passing.

Usage of the FTX price solves all of those issues. Minting takes place at the FTX price and there is no need to decide the pre-IPO mint price.

Before we make this decision, we need to look at how the FTX market operates for this kind of IOU.

Does the pre-IPO token trades based on anything tangible held by FTX broker, or is it a prediction market ?

Even before IPO day there can be a significant increase in price. Looking at FTX Coinbase (CBSE) pre-IPO contract as reference, Day 1 price ranged from $124 to $296. Between Dec. 21, 2020 and today (April 3, 2021) it ranged from $124 to $469.

Considering Coinbase’s most recent SEC filing (March 23, 2021) there is an implied valuation of $343 per share. Now the FTX contract at inception would have been reliant on earlier data.

I agree with you Siz that, as is, there is apparently little incentive to mint a pre-IPO asset.

Could a verified SEC filing be simply used to determine the opening price for the pre-IPO mAsset?

I’m not sure if any of you had come across this document before Key Information Document - COINBASE PRE IPO CONTRACTS “CB PRE IPO CONTRACTS” (https://ftx.com/equities_terms/KID_CBSE.pdf.

I have read it several times and while all the unwritten nuances are not entirely clear to me, it is authored by the 3rd party CM-Equity AG (“CM-E”).

It is seemingly convenient to rely on the FTX/CM-E parameters. Perhaps philosophically it might be better to envision a method of establishing parameters without having to rely on this 3rd party.

Notable specific parts of the document I referenced above are:

  1. “The maximum market capitalization of the CB PRE IPO CONTRACTS is limited to the equivalent of USD 250mm”.

  2. “Represent futures contracts whose value is linked to the market capitalization of a specific stock – in this case Coinbase Inc. – at the end of its first trading day at the stock exchange (“Underlying”)”. If the value is linked to the market cap at the end of it’s first day of trading then how is the price of the pre-IPO contract determined at inception?

  3. “If the value of the CB PRE IPO CONTRACTS move more than 20% in a single day, CM-E may at its discretion close out positions.”

  4. “CM-E is the sole counterparty for claims arising from the CB PRE IPO CONTRACTS. If CM-E is not able to make payments, the claims cannot be sold partially or fully to CM-E. There is a risk of partial or complete loss of the investment.”

So far my research has been unable to determine definitively what might be tangibly held by CM-E. I know that in December 2020 the Coinbase valuation was $28B. The most recent SEC filing indicates a valuation of $68B and a share price of $343. 28/68 * $343 = $141. The FTX contract appeared to open at around $124.

It would be interesting to know more about how CM-E sets the opening price, etc.

I mentioned this in another post in this thread but possibly an SEC filing or a reputable analysts estimate could possibly be used as a starting point.

#1

Personally I would like to see the Mirror pre-IPO market behave independent of FTX. It has been raised that minting may not be attractive at inception based on likelihood of up only trend.

#2

I think there should be an at-risk component which allows burn/sell only at an amount which is less than the voted fixed mint price. Using FTX coinbase pre-IPO again as an example, “In the event that Coinbase does not publicly list by June 1, 2022, balances will cash-expire to $32, in line with an 8 billion dollar valuation.” This is lower than the opening price of ~$124. This is very interesting because Coinbase has not been valued as low as $8B since 2018 during Series E funding. I don’t know exactly why I think it should result in a price lower than the voted fixed mint price except for in principle I tend to think that being made whole is perhaps too fair. Also it is interesting to note that the terms for Coinbase reference June 1, 2022 which is over 1 year beyond the anticipated listing date of April 14, 2021.