How OTC Token Deals Stack the Crypto Game Against Retail Traders
The post How OTC Token Deals Stack the Crypto Game Against Retail Traders appeared on BitcoinEthereumNews.com. Crypto funds and market makers are buying tokens at steep discounts through private over-the-counter deals and hedging them with shorts, locking in double-digit returns while retail traders take the risk. Venture capitalists, funds and market makers can often secure allocations at roughly a 30% discount with three- to four-month vesting, then hedge by shorting the same amount on perpetual futures markets, according to Jelle Buth, co-founder of market maker Enflux. This structure largely guarantees profits that can annualize to as much as 60%-120%, regardless of where the token price moves. Buth said Enflux also participates in such deals, describing them as a popular practice for projects to raise capital and for investors to lock in returns. Retail traders who are excluded from these arrangements bear the selling pressure when hedges and unlocks hit the market. “I would never want to be retail again,” Buth told Cointelegraph. Token access is different for insiders when compared to retail traders. How OTC token deals work for funds and market makers Over-the-counter (OTC) deals naturally tilt the market against retail traders, not only because of the selling pressure that impacts token prices, but also because they lack the transparency for a general investor to make informed decisions, Buth said. Here’s how a sample OTC deal could play out. An institutional investor partakes in a $500,000 deal as part of a $10 million raise. The investment is conducted through a token purchase at a 30% discount with a four-month vesting period. To hedge against price volatility, the investor opens an equal-sized short perp on futures markets. The price swings are offset, while the built-in discount locks in their profit once the tokens unlock. Because the 30% gain is realized over four months, the returns annualize to 90% APY. In traditional finance, companies must disclose fundraising…
The post How OTC Token Deals Stack the Crypto Game Against Retail Traders appeared on BitcoinEthereumNews.com.
Crypto funds and market makers are buying tokens at steep discounts through private over-the-counter deals and hedging them with shorts, locking in double-digit returns while retail traders take the risk. Venture capitalists, funds and market makers can often secure allocations at roughly a 30% discount with three- to four-month vesting, then hedge by shorting the same amount on perpetual futures markets, according to Jelle Buth, co-founder of market maker Enflux. This structure largely guarantees profits that can annualize to as much as 60%-120%, regardless of where the token price moves. Buth said Enflux also participates in such deals, describing them as a popular practice for projects to raise capital and for investors to lock in returns. Retail traders who are excluded from these arrangements bear the selling pressure when hedges and unlocks hit the market. “I would never want to be retail again,” Buth told Cointelegraph. Token access is different for insiders when compared to retail traders. How OTC token deals work for funds and market makers Over-the-counter (OTC) deals naturally tilt the market against retail traders, not only because of the selling pressure that impacts token prices, but also because they lack the transparency for a general investor to make informed decisions, Buth said. Here’s how a sample OTC deal could play out. An institutional investor partakes in a $500,000 deal as part of a $10 million raise. The investment is conducted through a token purchase at a 30% discount with a four-month vesting period. To hedge against price volatility, the investor opens an equal-sized short perp on futures markets. The price swings are offset, while the built-in discount locks in their profit once the tokens unlock. Because the 30% gain is realized over four months, the returns annualize to 90% APY. In traditional finance, companies must disclose fundraising…
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