Author: Route 2 FI Source: The Black Swan Translation: Shan Ouba
Currently, more and more traders on Twitter are buying Altcoin. In addition, many believe that OG DeFi tokens will make a comeback (for example, Aave now).
Personally, I have a ton of Altcoin locked up via OTC or angel rounds, and own a ton of $ETH.
These three things have been really fascinating to me lately:
OTC Secondary Market
Innovative stablecoin platform
Gambling Platforms/Prediction Markets
These three categories are huge, but let’s dig a little deeper into why they are interesting and why there is a lot of innovation happening in this space right now. OTC Markets, Stablecoins, and Prediction Platforms
Imagine waking up to find that your locked tokens have suddenly increased in value 100x, but you can’t use them for a year.
Waking up to find that the value of your tokens has skyrocketed 100 times is exciting. However, the euphoria is quickly hit by the reality that these tokens are locked and you can’t use them for a year. This dilemma is not uncommon in the cryptocurrency world, especially when it comes to tokens with lock-up or vesting periods.
1. OTC secondary market
Let’s start with the secondary market. Remember Binance’s contribution to the FTX debacle? At the time, FTX’s OTC liquidity was insufficient, causing Binance to start selling $FTT tokens on the open market. This action dealt a fatal blow to FTX and highlighted a key issue in the cryptocurrency market: How do you deal with the challenges of the lockup period when you have a potential “gold mine” of tokens in your hands?
OTC trading is not just for whale
Over-the-counter (OTC) trading of cryptocurrencies used to be the exclusive domain of big players who could complete large transactions without being publicly traded. However, with the popularity of token sales, airdrops, and vesting programs, the market demand for more easily accessible OTC solutions is increasing. This is where the importance of secondary markets comes in.
Importance of the secondary market
Imagine that you participated in a promising project as an early contributor. Today, the fully diluted valuation (FDV) of this project has reached 10 billion US dollars, and you only invested 1 million US dollars. On paper, your gains have increased 100 times! However, you still have to wait for the 36-month lock-up period to cash out these gains.
This scenario is not a pure thought experiment, but a real situation in the cryptocurrency space. Many early investors hold potentially huge wealth, but are trapped by the lock-up period. The secondary market provides them with a way out, or at least a way to cash out some of the value now. Currently, there are projects dedicated to solving this problem, such as Stix, OffX, Http OTC, and Secondary Lane.
How the secondary market works
The secondary market operates roughly as follows:
Proof of SAFT : Sellers need to present a Simple Agreement for Future Tokens (SAFT) to prove that they actually own the tokens they want to sell.
Display Quotes : The platform will display the seller's quote to a group of potential buyers.
Legal approvals : If there is an interested buyer, both parties to the transaction will need to obtain legal approvals to ensure compliance with relevant securities laws.
Agreement Approval : Depending on the terms of the agreement, the seller may also need to obtain the project party’s consent.
While the process is not as simple as listing a token on Uniswap, it is certainly a lifeline for those holding locked tokens.
Tokenized SAFT and Decentralized OTC Markets
Here’s where things get more interesting. What if we tokenize the SAFT itself, or create other derivatives based on locked tokens? For example, being able to trade a fraction of a future token distribution. Just like liquidity staking, why not go a step further and introduce “liquidity vesting”?
Imagine a completely decentralized OTC market platform where users can seamlessly trade these derivatives without intermediaries or closed groups. While this sounds great in theory, the regulatory challenges are huge.
Risks of the secondary market
While secondary markets may increase liquidity and price discovery, they also present some serious problems:
Insider Trading : What if a team member sells tokens before bad news is released?
Market manipulation : Markets with low liquidity are easy targets for pump and dump schemes.
Regulatory challenges : The U.S. Securities and Exchange Commission (SEC) is skeptical of cryptocurrencies, and adding complexity will only draw more attention.
The future of the OTC secondary market
So where is this all going? If we were to predict the future, we might see the following trends:
More complex derivatives based on locked tokens.
Integration with DeFi protocols to increase liquidity and lending opportunities.
A fully decentralized and regulatory compliant platform that meets the needs of global institutional investors.
What is certain is that as long as more and more projects adopt token lock-up periods and vesting schedules, the demand for secondary markets will continue to grow. However, it remains to be seen whether these markets will ultimately have a positive or negative impact on the crypto ecosystem.
How to implement a token lock contract that is acceptable to both parties without communicating with the DeFi protocol or startup team? This may be a future development direction. Imagine a smart contract that can automatically transfer or withdraw tokens based on a specific address. This will bring greater efficiency and convenience to the OTC market, making it as simple as borrowing USDC on AAVE.
2. Innovative stablecoin platform
In the turbulent crypto market, stablecoins play a vital role as a safe haven for digital finance. Although established stablecoins such as USDT and USDC have firmly occupied the market, they have some inherent problems. Especially in the context of daily fluctuations of cryptocurrencies that can be as high as 20%, the market's demand for more stable and innovative solutions has become particularly urgent.
Furthermore, stablecoins are the cornerstone of DeFi, a safe haven in a storm, and something you might have wished you were in before the last financial crisis.
But traditional stablecoins such as USDC and USDT have some problems:
- They are centralized, which means there is a single point of failure
- Faces ongoing regulatory challenges
- They are not capital efficient
But we have several projects that aim to address these issues, and may create some new ones in the process.
USDe on Ethena
Let’s focus on Ethena, because these guys are trying to do something… interesting. They call it the “Synthetic Dollar Protocol,” and it sounds like something out of a science fiction financial dystopia.
How USDe works (in theory)
1. You deposit staked ETH (such as stETH) as collateral.
2. Ethena opens a corresponding short position on the derivatives exchange.
3. You will receive USDe tokens in return.
The idea is that the short position hedges against ETH price fluctuations and keeps the value stable. It's like playing on both sides of a seesaw, hoping you don't fall off.
Basically, you can stake your USDe for sUSDe and get the following benefits:
- Earn staking rewards from your ETH collateral
- Financing and Basis of Hedge Positions
Risk (because there is always risk)
- Funding risk: What happens when funding rates are negative for a long time?
- Liquidation risk: If the spread between ETH and stETH becomes too large, things could get messy.
- Smart Contract Risk: Because without the threat of hacking, it wouldn’t be DeFi, right?
Ethena has an insurance fund to cover some of these risks, but in the crypto space, we’ve learned that “insurance” usually means “the first thing to go when things go bad.”
While Ethena is making waves, they are not the only ones trying to reinvent the stablecoin wheel:
Common currencies
Usual’s core positioning is a secure and decentralized fiat stablecoin issuer. They are building a multi-chain infrastructure to aggregate tokenized real-world assets (RWA) from large companies such as BlackRock, Ondo, Mountain Protocol, etc.
The end result? Turning these RWAs into a permissionless, on-chain verifiable, and composable stablecoin, USD0. It’s like they’re trying to build a bridge between the boring (but stable) world of traditional finance and the wild west of DeFi.
USD0 is billed as the world’s first RWA stablecoin that aggregates various US Treasury tokens. Here’s why it could be a big deal:
Security: Stablecoins are backed by actual U.S. Treasury securities.
Transparency: Real-time transparent reserves are addressing one of the biggest criticisms facing existing stablecoins.
Stay away from bankruptcy: Unlike some stablecoins that are pegged to commercial bank deposits (such as USDC during the Silicon Valley Bank crisis), USD0 aims to be truly independent of traditional banking risks.
They also have a “useless governance token”, but it might not be that useless:
It grants ownership over actual protocol revenue, not just voting rights on proposals that no one reads.
Staking $USUAL allows you to earn more $USUAL, creating a virtuous cycle for long-term holders.
There are rumors of future buybacks to increase “real value” — always a popular move in cryptocurrency circles.
Perhaps most interesting is that Usual is allocating 90% of its supply to the community, a bold move in a space where founders and venture capitalists typically keep the lion’s share for themselves.
Challenges and Problems
Of course, it wasn’t all smooth sailing. Usual faced some significant challenges:
Regulatory scrutiny: Anything involving U.S. Treasuries is bound to attract regulatory attention. How will Usual navigate this complex landscape?
Competition: The stablecoin space is highly competitive. Can Usual carve out a significant niche?
Adoption: Will it be different for DeFi users to accept stablecoins backed by treasuries instead of dollars?
Potential impact
If these new stablecoin models actually work (work, as in they actually become relevant and widely used, rather than being a speculative anecdote), we may see some major shifts in DeFi:
- Capital-efficient lending
- New income generating strategies
- Possibly less systemic risk (or just new, more exciting types of risk)
To be honest, when I see these new stablecoin platforms, there’s a part of me that thinks, “Haven’t we learned our lesson yet?” I mean, I lived through the UST debacle, and that was about as entertaining as a drunk gibbon getting a root canal.
But another part of me — the part that’s been hopeful since 2017 — is excited. Because this is what crypto does best: take existing financial concepts, add some complexity and risk, and somehow end up innovating.
In the next issue, I will dive deeper into the stablecoin opportunity. Examining Ethena, Usual, Anzen, Elixir USD, and Mountain USD for yield opportunities and best ways to invest.
3. Gambling Platform/Prediction Market
OK, folks, now it’s time to talk about everyone’s favorite hobby: gambling – I mean “speculative predictions.” Because since you can bet on anything, why limit yourself to betting on price movements?
Imagine if you could bet on the exact date of the last Bitcoin halving, or the color of CZ’s shoes when he gets out of jail.
Welcome to the world of crypto prediction markets, where your random thoughts could make you rich (or, cost you a small fortune).
Prediction markets are not new, but blockchain technology has given them a new lease of life. The idea is simple: create a market for any future event, let people buy and sell stocks based on their predictions, and watch the wisdom (or collective stupidity) of the crowd emerge.
Non-Sports Betting vs Sports Betting
There are two types of crypto prediction markets:
1. Non-sports prediction markets: Bet on anything from rate cuts to whether Vitalik will wear a suit.
2. Sports Betting: When you want to combine your gambling addiction with your love for sports.
Polymarket and friends
Let’s focus on the example of a crypto prediction market: Polymarket.
How does it work?
Just build a market around any yes/no question and allow people to trade based on the outcome. Voila!
Popular markets include politics, crypto events, celebrity gossip – you name it, there’s probably someone keen to bet on it.
But Polymarket is not alone.
Newer platforms like LimitlessExchange and HedgehogMarkets are also looking to get a piece of the action. LimitlessExchange offers markets denominated in ETH, while HedgehogMarkets on Solana is attracting attention with its unique pooled betting system.
One of the most exciting developments in this space is permissionless markets. Imagine a world where one can create a prediction market on almost anything without needing permission from some old guy who never lost money on some obscure memecoin.
The ultimate form of free speech backed by encryption.
Another revelation is the application of artificial intelligence in market decision-making. Imagine a prediction market where artificial intelligence can automatically resolve the outcome of such complex and delicate events without human intervention.
It's like we're constructing an oracle of reality.
Sporty
Let’s talk about how to invest ETH in sports. SX Bet, Azuro, and Overtime are bringing sports betting into the Web3 era:
Instant Payouts: You no longer have to wait days to get your winnings.
Transparency: All bets and odds are settled on-chain. No more shady bookmakers.
Global Access: Bet anywhere, anytime.
Some crypto sports betting platforms are seeing daily trading volumes that even small countries would envy.
But this is where things start to get really crazy.
There are signs that there are some pretty high stakes bets in the cryptocurrency prediction markets. Examples abound: LogX Trade is building perpetual futures for “what if” things like Trump’s win. Because regular bets aren’t risky enough, so… anything could go wrong, right?
But don’t forget that there are also low-profile prediction markets in memecoin.
$TRUMP and the $BODEN tokens are little more than proxy bets on the election outcome; holders are little more than speculators, guessing not only who will win, but how others will guess.
It’s like meta-betting, and it’s really fun to observe.
Looking to the future, I ask myself: Will decentralized prediction markets become a standard tool for business and governance decision-making, or will having a child one day require consulting an almighty blockchain for its opinion on fertility issues?
One thing is certain: in crypto prediction markets, the lines between gambling, investing, and forecasting have become very blurred.
The possibilities are both exciting and terrifying.
Predicted Future
So where is this all going? If I had to bet (and I obviously do), I’d say we’re facing a future where the lines between prediction markets, traditional finance, and everyday decision making become very blurry — very blurry. What can we expect?
- Create a market and use AI to solve it: Imagine when markets simply and automatically emerge around trending topics, and AI simply handles everything that determines the outcome.
- Combine this with real-world governance: Can we see prediction markets influencing policy decisions?
- Make micro-predictions about everything: betting on tomorrow’s weather, tweet likes, or whether my crush will finally notice me.
Think of it this way: Another innovative solution includes using yield-bearing stablecoins or even designing a lending protocol that allows users to borrow against their positions.
For example, bet $1,000 on Trump to win and use leverage. The position will not be settled until November. So bet $1,000 but only cost $200 (5x leverage —> capital efficiency). Actually https://www.levr.bet/ is doing this.
Or you can use your position as collateral to borrow money. This approach can make prediction markets more attractive.
Your $1,000 bet on Trump —> $500 loan to use for anything.
The potential here is incredible. We are talking about a world where collective intelligence is combined in real time, information has a price, and can be traded as efficiently as a stock.
This is what would happen if Wikipedia and Wall Street got together and had a child, and that child loved gambling.
But let’s not get too excited, we still have some hurdles to overcome:
- Regulatory challenges: Governments are not too keen on unregulated gambling apps. It’s like magic, isn’t it?
The prediction problem: How do you ensure that bets are resolved fairly and accurately?
- Market manipulation: With greater liquidity comes greater liability and the potential for severe disruption.
The future is unpredictable
The landscape is changing rapidly. From secondary OTC markets providing a lifeline to locked-up token holders, to innovative stablecoins challenging our notions of value, to prediction markets that let you bet on nearly anything — the future of finance is being written (and rewritten) in real time.
Are these innovations the key to unlocking the next wave of cryptocurrency adoption, or are they just more sophisticated ways for scammers to lose money?
Honestly, probably a bit of both.
What I do know is this: the creativity and sheer audacity in crypto never ceases to amaze me. Just when you think you’ve seen it all, someone comes along and creates an AI-powered, quantum-entangled, blockchain-based solution to a problem you didn’t even know existed.
So what happens next? I really don't know.
But here I will be, strapping myself in, probably making unwise bets on prediction markets and imitating any new stablecoin that promises to bring me endless wealth.
Because in crypto, the only thing crazier than missing out on the latest innovation is missing out on it entirely.
Remember, Anonymous: the future is not set, but with these new tools, we may be able to bet on it.
Don’t gamble money you can’t afford to lose. Of course, this isn’t financial advice — but then again, what is financial advice in this crazy financial world?
Nonetheless, Anonymous, please be safe out there!
