The Site is a trading environment for the spot purchase and sale of Digital Tokens. The Site permits both unfinanced and financed transactions. Unfinanced purchases are fully funded by trading participants through funds deposited by the participants on the Site. For example, if a trader deposits $100.00 into her account on the Site, she may then purchase $100.00 worth of bitcoins in an unfinanced transaction. Purchases and sales of bitcoins on the Site, whether in an unfinanced transaction or a financed transaction, are settled by actual delivery of the full amount of the bitcoins or other Digital Tokens by the seller to the purchaser’s account against payment in full by the purchaser to the seller’s account.
Financed transactions in Digital Tokens are permitted through the Site’s platform-enabled, peer-to-peer financing functionality. Financing Providers may offer financing from and on their own account if they so choose. Financing Recipients may accept financing from Financing Providers for up to 70% of the value of a Digital Token purchase. For example, if a trader deposits $30.00 to the Site, she may then obtain financing in an amount not exceeding $70.00 in order to buy $100.00 worth of bitcoins in a financed transaction. In other words, she may accept financing equal to a maximum total bitcoins-to-equity ratio of 3 1/3 to 1.
Shorting is another type of financed transaction permitted on the Site’s platform. In a typical “long sale” of bitcoin, the seller enters into a regular spot trade of bitcoin and settles the transaction by delivering bitcoin that she owns outright. In a “short sale” of bitcoin, the seller also enters into a regular spot sale of bitcoin except that the transaction is settled by delivering bitcoin that she has borrowed.
Digital Tokens can be borrowed for purposes of short sales through the platform’s peer-to-peer financing functionality. The bitcoin borrower may seek offers or make a bid to borrow Digital Tokens on the Financing Order Book. Bitcoin borrowers are not permitted to borrow more than 70% of the bitcoins sold in a short sale. The fiat proceeds of any short sale serve as collateral for the borrowing of the bitcoins until those bitcoins are repaid.
Bitfinex allows trading participants to use third party peer-to-peer financing from other participants on the platform to trade Digital Tokens. Financing Recipients may obtain financing in one of two general ways: they may place bids for financing on the Financing Order Book; or, they may elect to be automatically matched through the Site’s order matching engine with one or more Financing Providers on the Financing Order Book at the best prevailing price on the Financing Order Book. Although Bitfinex is not a party to these financing contracts, Bitfinex enforces the contracts established between Financing Providers and Financing Recipients on the Financing Order Book.
The Financing Order Book operates independent of the Trading Order Book. Once the desired financing is secured by a Financing Recipient, both financed and unfinanced transactions on the Trading Order Book are indistinguishable from each other to the trade matching engine.
The amount of the financing, the term of the financing, and the interest rate are all commercial terms negotiated through the Financing Order Book between Financing Providers and Financing Recipients. For instance, assume that A has $30.00 (in dollars) in her account on the Site. A obtains $70.00 in financing at X interest rate for Y term on the Financing Order Book (thereby becoming a Financing Recipient) from B, a Financing Provider. With that aggregate amount of $100.00, A may purchase $100.00 in bitcoins on the Trading Order Book from C, or from one or more other sellers. A has the right to repay the financing (including any accrued interest) at any time without pre-payment or other penalty. Obtaining financing does not create any obligation to purchase bitcoins on the Trading Order Book. A may also replace financing from B at any time with more favorable financing.
In the above example, the bitcoins purchased by A ($100.00) are subject to a Lien in favor of B up to the total amount of financing secured from B ($70.00 plus any interest component). A may remove any amount of bitcoins from the Site that is not subject to the Lien. If the Financing Recipient’s equity falls to or below 15%—calculated as the quotient (expressed as a percentage) obtained by dividing (a) the excess of (i) the market value of the purchased bitcoins over (ii) the total principal amount (plus accrued and unpaid interest) relating to all financing outstanding by (b) the market value used in (a)(i), above—Bitfinex will force the liquidation of the bitcoins in A’s account without notice to A, return financing to the Financing Provider, with accrued interest, and return the balance to the Financing Recipient. Bitfinex does not make margin calls. For example, if the purchased bitcoins’ value falls from $100.00 to $82.35, the difference between that value and the financing obtained by A would be $82.35 – $70.00, or $12.35. Taken as a percentage of the bitcoins’ value, $12.35 ∕ $82.35 equals 15%. In other words, if the value of the bitcoins fell to $82.35 in aggregate, A’s bitcoins would be liquidated by Bitfinex on the Trading Order Book, B would be repaid, and any remaining difference ($12.35, exclusive of interest) would be A’s to retain.
As set out in the Terms of Service, you grant Bitfinex agency to implement, levy, monitor, and maintain any and all Liens in favor of Financing Providers and to force-liquidate any Digital Tokens in your name or control on the Site if necessary to ensure that any Financing Provider on the Site from whom you have obtained financing is repaid in full. As set out in the Terms of Service, trading markets in digital tokens can shift quickly. Price movements can be unexpected. There is no guarantee against losses on the Site. You may lose more than is in your various wallets on the Site if you engage in financing on the Site. You are responsible for any trading and non-trading activity on your Bitfinex account, but Bitfinex must at all times retain the ability to protect Financing Providers by force-liquidating your account, as and when necessary. Bitfinex cannot guarantee to stop losses even with the ability to force-liquidate any of your positions (due to, for example, market volatility and liquidity). Bitfinex will not be and is not responsible for any Financing Provider losing funds or Digital Tokens to any Financing Recipient on Bitfinex.
If the market value of bitcoins rises, A may sell her bitcoins and repay the loan. For example, assume the value of A’s bitcoins rises to $115.00. Now the difference between the bitcoins’ value and the financing is $115.00 – $70.00, or $45.00. Taken as a percentage of the value of the bitcoins, $45.00 ∕ $115.00 equals approximately 39%. Accordingly, A could remove part of her equity, but may not fall below her initial equity requirement. A could also sell the bitcoins on the Trading Order Book, repay the financing to B (plus any interest), and retain the balance on the transaction.
Alternatively, A could satisfy the Lien and unencumber the bitcoins by repaying the financing used to purchase the bitcoins. Unencumbering the bitcoins simply refers to the process of using some combination of unrealized gain or additionally deposited funds, or both, for the purposes of paying off the financing and removing the Lien. In the above example, A could deploy the unrealized gain of $15.00 to partially unencumber the bitcoins owned by her, thereby reducing the financed amount outstanding to B.
You can use the trading features of the Trading Order Book through your "Trading Wallet." You may access the Funding Order Book through your "Deposit Wallet."
Multi-Signature Wallets require multiple permissions—through private keys—to transmit funds from a bitcoin wallet. In a traditional bitcoin wallet, each address in that wallet has one associated private key that vests full power in the key holder to sign for and transmit funds from that address. So-called “m of n” multi-signature addresses allow for bitcoin addresses with two or more (n) associated private keys which can be configured to require some subset of them in order to sign transactions from those addresses. For example, each Multi-Signature Wallet is built on a “2 of 3” multi-signature configuration; there are three associated private keys, and any two of those keys can sign for transactions.
BitGo provides certain services to Bitfinex. In connection with its provision of those services to Bitfinex, BitGo provides the technology to enable Multi-Signature Wallets and also holds one private key for each Multi-Signature Wallet and uses those private keys to sign transactions as directed by Bitfinex. Bitfinex is unique in offering this service and functionality to its customers through BitGo, and Bitfinex is proud of its partnership with BitGo.
If you are a U.S. Person engaged in financing on the Site, your financing transactions will be undertaken through Encumbered Wallets. One private key for each Encumbered Wallet is distributed to each of you, BFXNA, and BitGo. For the avoidance of doubt, this structure applies only to wallets of U.S. Persons containing bitcoins subject to one or more Liens. One key should be in your exclusive control at all times. With respect to the private key distributed to BitGo, BitGo only uses the private key to sign Multi-Signature Wallet transactions first signed by Bitfinex.
If you are not a U.S. Person but are engaged in financing on the Site, or if you are a U.S. Person not engaged in financing on the Site, your transactions on the Site will be undertaken through Unencumbered Wallets. Two private keys for each Unencumbered Wallet are distributed to Bitfinex and one private key is distributed to BitGo. With respect to the Bitfinex private keys, one private key is an operational key and one is a backup key. The backup key is broken up into multiple parts and requires multiple agents of Bitfinex in order to reconstruct it. With respect to the private key distributed to BitGo, BitGo only uses the private key to sign Multi-Signature Wallet transactions first signed by Bitfinex.
BFXNA has also partnered with SynapsePay. SynapsePay is a white label application program interface provider that allows you to transmit and receive funds to SynapsePay’s banking partners in the United States. This relationship is designed to hold your funds in fully regulated U.S. financial institutions. Where your funds are held with SynapsePay’s banking partners, they are FDIC insured up to a balance of $250,000.00.