TeraExchange has launched a bitcoin swap that became the first financial product tied to digital currency that received approval from the US government.
Based in New Jersey, a swap execution facility is offering the bitcoin derivative to large organizations that want to protect bitcoin value by providing an insurance against the volatility of cryptocurrency.
Speaking to CoinDesk, Leonard Nuara, TeraExchange president and co-founder, told that the new offering will enable investors interested in virtual currency to enter the bitcoin market.
Nuara told CoinDesk: “This is a major step forward for the broader bitcoin community by building out a first institutional mechanism for hedging in the bitcoin space in a regulated marketplace. This is a step toward, potentially, reducing volatility and increasing liquidity in the marketplace because people will have more safety and soundness in their trading.”
TeraExchange began developing the product in the beginning of the year and only now obtained permits from the US Commodities Futures Trading Commission (CFTC), the government agency regulating futures and options markets. The company, which was launched in 2010, first announced its plans to commission the bitcoin swap in March.
The bitcoin swap does not involve exchanges of actual bitcoins. The swaps are denominated in US dollars and transactions also use the currency.
The swaps enable the parties to avoid long-term changes in bitcoin price that may negatively impact their ability to operate.
In addition to bitcoin swap, such projects as the bitcoin ETF created by Winklevoss brothers are now under consideration by the Securities and Exchange Commission (SEC).
TeraExchange has also created an index that includes data from a range of leading global exchages in order to determine the value of the swaps.
Nuara told Coindesk that the company needed to provide an access to the real-time information that complies with the standards of US regulators. The company needed to create price indicators that would meet CFTC standards.
He told CoinDesk: “What we had to build, and then prove through the documentation that we provided to the CFTC, was that our index was robust enough and diverse enough and able to act to filter out anomalous beahvior enough, that the index is not susceptible to manipulation, or the marketplace.”
TeraExchange price index is based on information from six different exchanges, and the number it slated to increase. The firm partnered with several bitcoin exchanges in the world that would give real-time data on their price index.