Mircea Popescu, operator of MPEx, has selected companies that:

  • involve their business operations with Bitcoin
  • eschew representation in La Serenissima
  • raise in excess of 1MN USD
  • valuing their companies in excess of 100MN USD

for aggressive shorting.

The entire play is comprised of a fund (F.DERP) and by it backed derivatives (D.*) on venture-backed startups. The derivatives are usually offered at a steep discount relative to the prices the venture capitalists paid for the same share in that company. No dividends are planned, the D.* will be liquidated when their underlying (the startup in question, or the DERP) lists on a major fiat stock exchange, legitimate bitcoin exchange, or are acquired by another company, or goes out of business. In the event that this happens, the relevant D.* derivative will pay out an equivalent amount of BTC to the average price of the underlying over the first month of trade. In case the underlying folds, D.* expires worthless.

Going Long the DERPs

Going long (or making investments that pay out if the underlying increases in value) the fiat-backed bitcoin ventures with Bitcoin can be a difficult or impossible thing. The funding rounds are typically closed to outside investment, or only available in fiat.

Bitcoin holders may feel "left out" of the opportunity to invest in the frenzy of venture-backed bitcoin businesses and the commensurate returns. Purchasing the D-series derivatives establishes a position that pays out if the underlying companies succeed in making it to the IPO phase of the corporate lifecycle (which is when many venture investors divest of the company anyways).

Shorting the DERPs

Shorting (or constructing a position that pays out if the underlying decreases in value or fails to IPO) the DERPs is as tricky to pull off as taking a long position on them.

Bitcoin holders who seek to profit off the misfortunes of venture-backed companies who refuse to bow to La Serenissima have the opportunity to put their coins into F.DERP. F.DERP carries shareholder equity (the amount of cash with which it was instantiated), and "cover" from the proceeds of sale of D-series derivatives.

An example (from http://log.bitcoin-assets.com/?date=27-07-2014#771435): F.DERP is created with 100 BTC of shareholder equity, and underwrites 50 shares in D.A and D.B, of which it sells 10 of each at the price of 1 BTC per contract. At this point F.DERP carries 120 BTC cash: 100 in shareholder equity and 20 in cover. When D.B keels over under the regulatory burden of operating a bitcoin business under the United States Government's byzantine rule system, F.DERP still carries 120 BTC in cash, but the distribution is now 110 BTC in shareholder equity and 10 BTC in provisions.

A short-DERP analysis of F.DERP NAV might hold that all BTC reserved for "cover" will eventually move into shareholder equity, and value F.DERP's NAV as 120 BTC at this point.

Higher Risk Plays and Advanced Positions

Investors seeking a greater return on their capital, or higher leverage on their capital may consider borrowing D-series contracts from those who've already purchased them, and selling them back into the market. This is most definitely "big boy pants" trading, and should not be attempted unless the trader in question has entered into that sort of contract before and is confident in their ability to satisfy its terms.

A long-DERP analysis of F.DERP might suggest that several of the companies underlying the D-series derivatives will return 1`000X - 1`000`000X their valuation at the time of their D-series issuance. This analysis might lead an investor to conclude that the Fund will be exhausted of capital within 2-5 years time, and borrow shares in the fund to sell in the open market, planning to buy them back in the future when F.DERP NAV drops significantly, reflecting the decrease in shareholder equity. This investor could leverage their play further, investing the proceeds from borrowing the F.DERP shares into D-series derivatives in which they see upside.


F.DERP's assets backstop the entire set of DERP assets. F.DERP launched with 3`249.90000000 BTC in shareholder equity, courtesy of some of the deepest pockets in Bitcoin. With each DERP issuance and sale, the F.DERP manager sets proceeds from the sale of the DERP derivatives as "cover" in case of the event that the underlying survives to maturity, listing on either a fiat exchange or a legitimate Bitcoin exchange.


The F.DERP upside is in profits that accrue from the sale of D-series derivatives. When these derivatives are sold, the fund manager reserves that income as "cover" for contracts sold. If a given derivative contract expires with no value, the bitcoins reserved for "cover" are booked as revenue and F.DERP's NAV available to shareholders increases. Thus, the upside for investors in F.DERP is an asset whose value increases as the contracts it writes expire worthless. The contract allows for the fund manager to pay dividends but potential investors should not expect such any time in the near future.


F.DERP backstops all of the D-series issuances. Mircea Popescu explained the implications of this collateralization model thusly:

<mircea_popescu> basically if each individual issue goes up 2x in btc, then it's just about wiped.%% <mircea_popescu> if one issue goes up 100x in usd and btc goes up 10x and there's 10 issues, then it's just about wiped.

F.DERP risks are not to be underestimated or considered simple. F.DERP bears the risk of payments to D.* holders that are a function of company valuation and BTC value. Some of the companies underlying the D.* issuances may fold, and some may survive to list on an exchange. Company values may increase, or they may decrease. F.DERP is an investment vehicle for sophisticated investors who believe they understand the risks.


The D-series of derivatives represent share of companies named in their prospect.


Purchasers of a DERP derivative are paid out in 3 scenarios. When the underlying company: - lists on a legitimate bitcoin exchange - lists on a major fiat exchange - is acquired by another company

Should any of the companies on which Mircea Popescu issued a D-series derivative list on a "legitimate" bitcoin exchange (MPEx being the only exchange satisfying that criteria at the time of writing), the contract pays out 1 share in the company for each derivative contract.

Should any of the companies list on a major fiat exchange (NYSE and NASDAQ are the candidates at the time of writing), each D-series contract for the company in question will pay out 1/1`000`000 of the average market capitalization over the first thirty days of trading.

Should any of the companies be acquired, the contract pays out thusly (quoting MPEx):

"...half of one millionth of the positive variation in market capitalisation of the acquirer during the month following the acquisition if the acquirer is ten times larger than BitPay or less, else to half of one millionth of a portion of the positive variation in market capitalisation of the acquirer during the month following the acquisition equal to the portion of the acquirer's market capitalisation that the acquisition represents at the time of announcement..."

A D-series derivative gives bitcoin holders the ability to capture profits that accrue to investors when a venture-backed company goes public. Calculating the valuation of these companies necessary to recoup a D-series purchase and profit on it is left as an exercise to the investor.


Purchasers of a D-series contract face 2 risks. Firstly, that the underlying company goes out of business or fails to IPO or get acquired for any reason. Secondly, that as a class of companies they perform so well as to wipe out the entire F.DERP fund (which currently sits at 3`249.90000000 BTC). Potential investors should note that bitpay's last funding round valued it at 266`666 BTC and BitGo's last round valued it at 58`333 BTC.


The F.DERP fund and the D.* derivatives series give bitcoin holders the ability to go long or to short a wide variety of fiat venture-capital backed bitcoin companies, which would not be possible otherwise. Trades occur on MPEx, which can be accessed via CoinBr broker.