What is Lykke Forward?

What is Lykke Forward?

What is Lykke Forward?

By Sergey Ivliev, Lykke co-founder and COO

Forward rates are theorized prices of financial transactions that might take place at some point in the future. Or put another way; forward rates help to understand the future value of something, today.

To understand the differences and relationship between spot rates and forward rates, it helps to think of interest rates as the prices of financial transactions. Consider a $10,000 bond with an annual coupon of 5%. The issuer is essentially paying 5% ($500) to borrow the $10,000. In this case, the forward rate for such a bond would be $10,500 assuming there are no additional commissions or fees.

Theoretically, the forward rate should be equal to the spot rate plus any earnings from the security, plus any finance charges. You can see this principle in equity forward contracts, where the differences between forward and spot prices are based on payable dividends minus the applicable interest during the period.

So too in commodities, forward-rates otherwise known as futures prices, calculate an estimated (or perceived) future value, priced in today’s money.

A spot rate is used if the agreed trade occurs today or tomorrow, whereas forward rates are used if the agreed trade isn't set to occur until further in the future.

Lykke’s 1-year forward offering works in much the same way. The underlying asset of the forward is Lykke shares digitized in a form of Lykke coins (LKK).

LKK is a new crypto-asset with a novel ability to give their owners a stake in the holding company Lykke Corp (Switzerland) as well as rights to receive dividends and to vote. Lykke coin owners are entitled to 1 Lykke Corp share for every 100 coins they own, as part of Lykke collaborative business strategy that welcomes financial participants to become inherent Lykke owners, simply though conducting transactions on the Lykke Marketplace, using Lykke’s technology.

From the technical point of view Lykke coin is issued as a colored coin on the bitcoin blockchain with Open Assets protocol. Purchasing Lykke coins allows the owner to digitise his/her wealth, then convert it into another liquid asset in future or use it as collateral for borrowing funds.

Lykke 1-year forward coin (LKK1Y) is essentially a derivative on LKK. Buyer of 1 LKK1Y can purchase the right to receive 1 LKK in 365 days after they ask for the delivery. In other words, there is no fixed maturity date: if you buy a Lykke forward contract, you can execute it at any date and after 1 year passes the Lykke coins will be delivered.

Traditional financial instruments such as currencies, bonds and stocks tend to use a benchmark interest rate to calculate forward prices. With Lykke’s forward offering, because there is no interest rate set by any central authority, Lykke coins will generate and sustain their own implied yield curve depending on inherent demand and supply for Lykke forward coins. 

Let’s take a look at the Lykke Forward Offering in more detail

Special limited offer February 9th – February 28th 2017

Offer to buy 1-year Lykke coins at a 20% discount subject to holding coins for one year 

Total number of 1-year Lykke coins to be sold: 50,000,000

Issue price per coin (“forward price”): CHF 0.04

Date of settlement (T=date of trigger event): T+365

Amount of capital to be raised: up to CHF 2,000,000

Type of contribution: in cash / BTC

Lykke is issuing 50,000,000 new coins at a Forward Price of CHF 0.04, and potentially raising a further CHF 2,000,000 to be used for progressing Lykke towards becoming the world’s #1 crypto-currency marketplace and digital assets exchange.

The delayed delivery assumes a premium, which is implied in the Lykke forward price. Offered Forward Price is CHF 0.04 in today’s prices — therefore buyers can obtain a 20% discount to the spot price of the Lykke coin, subject to 1 year delivery.

After the offering period is over Lykke forward coins will be tradable on Lykke Exchange to major currencies and to LKK. When the trigger event is called by the owner the Lykke forward coins are then become frozen until the delivery.

Let us summarize the difference between the Lykke coins and Lykke forward coins:

Feature

Lykke coin (LKK)

Lykke 1-year forward (LKK1Y)

Stake in Lykke

+

-

Voting right

+

-

Dividends

+

-

Tradable

+

+ (until the delivery is triggered)

Can be collateral

+

-

Current price

0.04818 CHF

0.04 CHF

Asset metadata

URL

URL

 

More detailed information can be found in the Fact sheet and Coinholder memorandum available at forward.lykke.com

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