KeyTakeaway:
- Crypto investors use off-exchange trades to liquidate locked tokens through market-making firms.
- Secondary market for locked assets grows, with $5.4 billion unlocked in 2024, adding pressure.
- Hedging strategies, like forward contracts and SAFT deals, help manage volatility and risk.
Crypto investors are increasingly utilizing off-exchange trades to liquidate tokens that would be locked under vesting agreements. Market-making firms, such as Wintermute, Flowdesk, and Caladan, are aiding these transactions by offering private deals, forward contracts, and Safe Agreements for Future Tokens (SAFTs).
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The secondary market for locked assets has expanded in 2024, with over $5.4 billion worth of tokens unlocked, creating pressure on the market. As a result, investors have turned to market-making firms to hedge their positions and manage possible losses due to price fluctuations. Without centralized exchange listings, market-makers construct two-sided books for tokens, facilitating off-market trading and providing liquidity options.
David Bachelier, Chief Markets Officer at Flowdesk, noted that the demand for locked token trading is growing while this market is still developing. “Although not yet a fully functional two-way market, the demand shows potential for innovation and growth,” Bachelier said in an interview with Bloomberg.
Alternative Trading Strategies to Hedge Against Price Movements
Investors are engaging in forward contracts and SAFT deals to bypass vesting schedules. Forward contracts allow traders to lock in future token prices, helping them hedge against volatility. In these arrangements, investors must provide collateral to ensure the trade’s execution.
Additionally, the SAFT agreement allows them to sell the right to receive tokens once they are unlocked, providing an early liquidity option. These strategies have led to an increased transaction flow outside official market channels.
The surge in locked token unlocks has introduced selling pressure on the market, especially during periods of high volatility. In 2024, when large token unlocks occurred, market makers stepped in to help ease the pressure. According to Jonathan Chan, Global Head of Business Development at Wintermute, these secondary market strategies help to “ensure delivery” while offering investors a way to manage risk.
However, some crypto projects have raised concerns over the lack of oversight in these transactions, as many deals occur without explicit approval from token issuers. Some projects require investor consent before transferring token rights, but this new wave of off-exchange trading is pushing the boundaries of these agreements.
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As Bitcoin and Ethereum face price fluctuations, hedging strategies have become a major part of risk management. Bitcoin, which hit a record high of $109,241 earlier in the year, has fallen more than 25%. Ethereum has also experienced similar turbulence, showing the need for investors to manage their positions through these secondary markets.
