2.3.6 Repo

What is Repo?

Repo or repurchase agreements are agreements where, today, you agree to exchange one asset (A) that you already own for another asset (B) that you, or someone else, needs for a pre-agreed time period (usually 24 hours). Then, at the end of the time period (24 hours) you return the borrowed asset (B) in exchange for your original asset (A)..

The agreed upon price between (A) today and (A) tomorrow is the “Repo price” or “cost”. The Repo price is effectively the fee paid to the lender of asset (B) to compensate him/her for lending his/her asset to you for 24 hours, or more simply, it’s the interest that a borrower pays a lender to borrow their asset for 24 hours.

Why do people want to trade Repo?

Traders use Repo so that they can borrow assets that they do not have today, but need the use of.. For example, if you only hold BTC but require USD for a short period of time, and you do not want to sell your BTC, you could use CoinFLEX BTC Repo to get a USD loan, which is collateralized by BTC.

Does Repo trade on an order book?

It does now. CoinFLEX is the first Exchange in both the traditional and crypto space to launch a centrally traded and cleared order book for Repo trading. CoinFLEX’s Repo book is an overnight lending order-book, which means that every trade is deliverable within 24 hours or can be set to roll automatically for an unlimited amount of time.

What does bidding or offering in Repo mean?

If you bid in Repo, it means that you have USD that you would like to lend to a borrower in exchange for the borrower’s (Repo seller’s) Coin collateral. If you offer in Repo, it means that you have Coins that you would like to lend in exchange for USD collateral.

Does it matter if I have USD or Coins?

US Dollar (USDC) lenders can bid in any of the Repo order books. Coin (BTC, BCH, ETH, etc) lenders can only offer to sell Repo in the Repo order book of the Coin that they own.

How is Repo quoted?

CoinFLEX repo is currently a 24 hour instrument (Selling Spot, Buying Perpetuals or the opposite) that can be auto-rolled. That means that if you buy Repo (lend USD and receive Coin Spot) then in 24hrs time this will be reversed, and you will end up with exactly the same position you started with adjusted by what you collected or spent as a % difference in price on the Repo order book.

Example A: If you bid 1 BTC on the Linear BTC/USD Repo order book at -0.10% (10 bps) and someone trades against you then you will:

Gain1 BTC ($10,000) and lend $10,000 to the seller. Then, upon delivery you will return the 1 BTC and simultaneously receive $10,010 ($10,000 + $10). The $10 is your return from lending USD for 24hrs, which is 36.50% annualised (uncompounded).

Example B: If you offer 1 BTC on the Linear BTC/USD Repo order book at 0.1% (10 bps) and someone trades against you then you will:

Gain $10,000 USD and lend 1 BTC ($10,000) to the buyer. Then, upon delivery you will return the $10,000 USD and simultaneously receive 1 BTC + $10 USD.

Example C: If you bid 1 BTC on the Inverse BTC/USD Repo order book at -0.10% (10 bps) and someone trades against you then you will:

Gain 1 BTC ($10,000) and lend $10,000 to the seller. Then, upon delivery you will return the 1 BTC and simultaneously receive $10,000 + 0.001 BTC.

Example D: If you offer 1 BTC on the Inverse BTC/USD Repo order book at 0.1% (10 bps) and someone trades against you then you will:

Gain $10,000 USD and lend 1 BTC ($10,000) to the buyer. Then, upon delivery you will return the $10,000 USD and simultaneously receive 1 BTC + 0.001 BTC.

What happens when you trade Repo?

As we have Deliverable Perpetuals, when you buy 1 BTC for -0.1% (10 bps) in the Repo order book, in the background, CoinFLEX will simultaneously buy 1 BTC from the Spot market and sell 1 BTC in the Perpetuals market on your behalf. If you carry this to delivery tomorrow (standard setting), you will deliver your short Perpetual Futures position. This means that you will deliver the 1 BTC that was brought to the buyer of the Perpetual Future and receive your initial capital plus 0.1% (10 bps) in return.

To solidify this example let’s assume BTC spot is trading at $10,000 and the Deliverable Perpetuals are trading at $10,010. You may notice that you can buy the spot and short the Perpetual Future to lock in $10 of profit per bitcoin, which will be realised during delivery tomorrow. Buying Repo at -0.1% performs an equivalent trade, which also earns 0.1% (10 bps) at delivery tomorrow. Performing this trade every day would yield 36.5% APR!

Is Repo a Borrow/Lend market or a spread market between Spot and Perpetuals

Both descriptions are accurate. You can use the Repo market to borrow, lend, and even as a spread market between spot and perpetuals.

Do I need to deliver the repo tomorrow?

No. Since you are holding a Deliverable Perp position, delivery is an option rather than than an obligation. The default when you open a repo position is that delivery is not ticked. If you wish to deliver, you can either use our Delivery API, or go to the “Positions” tab and click the delivery button to delivery.

Please remember that the Deliverable Perpetuals position may have a funding rate associated with it, which will apply if you chose to not deliver. If you are delivering, funding will not apply to you at all.

Repo delivery auctions will occur 3 times a day, separately at UTC 4 AM, 12 PM and 8 PM. There will be a 30 minutes cut off before the delivery each time. This means if you trade Repo before the cut off time on any given day, and do not untick delivery, then your Repo trade will be settled at the nearest delivery time at no cost to you. If you trade after the cut off time (e.g. 7:45pm) your Repo trade will settle at next auction time (e.g. 4am).

Can you be liquidated holding a Repo position?

If you intend to deliver and are fully funded from the Repo trade, then there is no chance of liquidation as you are ready to deliver in the next auction.

If you would like to keep the Repo trade open, you can do it by unticking the delivery option. Once you do this your position will no longer close at the next auction and the open Perp futures position that you have may receive or pay funding, so you will need to be mindful of this.

How do I trade?

Each physically delivered underlying (Coin) that CoinFLEX lists will have its own Repo book. Where a Coin that we list has an Inverse and a Linear product (most likely only BTC and ETH contracts), there will be 2 Repo books as the underlying Deliverable Perpetuals trades associated with these Repo trades will be different.

What are the risks of Repo?

As Repo trades are fully collateralised, you face no counter-party risk to the borrow. You only risk to CoinFLEX and our margining system. You also receive the opposing party’s collateral in your account as tradable, liquid collateral that can be used equivalently to any other collateral in your account.

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