Despite the innovative approaches, pre-token markets face challenges such as price discovery inefficiency due to low volume compared to markets after the token generation event (TGE), according to a recently published report by Keyrock. The report emphasizes that the volume disparity can be as high as 1,000 times, using Wormhole’s W and Jupiter’s JUP as examples. In addition, most trades on the points trading platform Whales Markets involve small amounts, suggesting that the majority of traders are not large-scale investors.
Keyrock highlights that pre-token and point markets are emerging as innovative financial instruments, offering traders early access to token futures. These markets are divided into two categories: perpetual futures derivatives markets, which are cash-settled, and peer-to-peer over-the-counter (OTC) markets, allowing for the trading of token futures prior to TGE with physical delivery.
Platforms like Hyperliquid and Whales Market have developed unique mechanisms for these trades. Hyperliquid’s Hyperps are settled on-chain with an off-chain order book, while Whales Market enables trading of both points and futures with a settlement date coinciding with the TGE. AEVO, another decentralized platform, allows users to trade perpetual contracts at a token’s future price, collateralized using USD Coin (USDC) stablecoin with a maximum leverage of 2x. Front Run, an on-chain OTC order book DEX, facilitates futures trading of points, airdrop allocations, and pre-tokens.
Centralized exchanges (CEXs) like Kucoin, Bybit, Bitmex, and Gate.io have also entered the pre-token trading space. Bybit, Gate.io, and Kucoin offer futures trading with physical delivery post-TGE, while Bitmex provides perpetual contracts trading collateralized with USDT.
The mechanisms behind these platforms vary, with AEVO using a time-weighted average price (TWAP) to set market prices and Hyperliquid using an 8-hour exponentially weighted moving average for pricing. Whales Market ensures seller collateral to guarantee token delivery at TGE, mitigating delivery risk.
Notwithstanding the significant volumes achieved by pre-token trading platforms like AEVO, Front Run, Hyperliquid, and Whales Market, the illiquid nature of pre-token markets and potential inefficiencies cannot be overlooked.