Author: Route 2 FI Source: The Black Swan Translation: Shan Ouba
Currently, more and more traders on Twitter are starting to buy altcoins. In addition, many people believe that OG DeFi tokens will make a comeback (for example, Aave now).
Personally, I have locked up a lot of altcoins through OTC transactions or angel rounds, and have a lot of $ETH.
These three things have been really fascinating to me lately:
Secondary markets for OTC
Innovative stablecoin platforms
Gambling platforms/prediction markets
These three categories are huge, but let’s dive into why they’re interesting and why there’s a lot of innovation happening in this space right now. OTC Markets, Stablecoins, and Prediction Platforms
Imagine waking up to find that your locked-up tokens are suddenly worth 100x more, but you can’t use them for a year
Waking up to find that your tokens have skyrocketed in value by 100x is exciting. However, the ecstasy was soon hit by reality, because these tokens are locked and you can't use them at all within a year. This dilemma is not uncommon in the cryptocurrency world, especially when there are tokens with lock-up or vesting periods.
1. Secondary market of OTC trading
Let's start with the secondary market. Remember Binance's contribution to the collapse of FTX? At that 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 also highlighted a key issue in the cryptocurrency market: How do you deal with the challenge of the lock-up period when you have a potential token "gold mine" in your hands?
OTC trading not just for whales
Over-the-counter (OTC) trading of cryptocurrencies was originally the exclusive domain of big players, who could complete large transactions without publicly trading. However, as token sales, airdrops, and vesting programs become more popular, there is an increasing need for more accessible OTC solutions. This is where the importance of secondary markets comes in.
The Importance of Secondary Markets
Imagine that you are an early contributor to a promising project. Today, the fully diluted valuation (FDV) of the project has reached $10 billion, and you only invested $1 million. 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 just a thought experiment, but a real situation in the cryptocurrency space. Many early investors are holding potentially huge wealth, but are trapped by the lock-up period. Secondary markets provide them with a way out, or at least a way to cash out some of the value now. There are already a few projects working to solve this problem, such as Stix, OffX, Http OTC, and Secondary Lane.
How the Secondary Market Works
The secondary market works roughly as follows:
Show SAFT Proof: The seller needs to show the Simple Agreement for Future Tokens (SAFT) to prove that he actually owns the tokens he wants to sell.
Show Offer: The platform will display the seller's offer to a group of potential buyers.
Legal Approval: If there is an interested buyer, both parties to the transaction need to obtain legal approval to ensure compliance with relevant securities laws.
Agreement Approval: Depending on the terms of the agreement, the seller may also need to obtain the consent of the project party.
While the process is not as simple as listing a token on Uniswap, it is certainly a lifeline for those holding locked tokens.
Tokenized SAFTs and Decentralized OTC Markets
Here’s where things get more interesting. What if we tokenized the SAFT itself, or created other derivatives based on locked tokens? For example, being able to trade a fraction of a future token allocation. Just like liquidity staking, why not go a step further and introduce “liquidity vesting”?
Imagine a fully decentralized OTC market platform, without intermediaries or closed groups, where users can seamlessly trade these derivatives. While this sounds great in theory, the regulatory challenges are huge.
Risks of Secondary Markets
While secondary markets may increase liquidity and price discovery, there are some serious concerns:
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 attract more attention.
The Future of OTC Secondary Markets
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, whether these markets will ultimately have a positive or negative impact on the crypto ecosystem remains to be seen.
How to implement a mutually acceptable locked token contract 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 in cryptocurrencies that can be as high as 20%, the market's demand for more stable and innovative solutions has become particularly urgent.
In addition, stablecoins are the cornerstone of DeFi, a safe haven in the storm, and something you might have hoped to get into before the last financial crisis.
But there are some problems with traditional stablecoins like USDC and USDT:
- They are centralized, which means there is a single point of failure
- Face ongoing regulatory challenges
- They are not very capital efficient
But we have several projects that aim to solve these problems, and may create some new ones in the process.
Ethena’s USDe
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 novel about a 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 a derivatives exchange.
3. You get 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:
- Staking rewards from your ETH collateral
- Funding and basis risks for hedged positions (because there are always risks)
- Funding risk: What happens when the funding rate is negative for a long time?
- Liquidation risk: If the spread between ETH and stETH gets too big, things can get messy.
- Smart contract risk: Because it wouldn’t be DeFi without the threat of hackers, right?
Ethena has an insurance fund to cover some of these risks, but in crypto, we’ve learned that “insurance” usually means “the first thing to go when things go wrong”.
While Ethena is making waves, they’re not the only ones trying to reinvent the stablecoin wheel:
Common Currencies
Usual’s core positioning is as a secure and decentralized fiat stablecoin issuer. They are building a multi-chain infrastructure to aggregate tokenized real-world assets (RWAs) from big players like BlackRock, Ondo, Mountain Protocol, and more.
The end result? Turning those 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: The stablecoin is backed by actual US Treasury bonds.
Transparency: The real-time transparent reserve is addressing one of the biggest criticisms of existing stablecoins.
Protection from bankruptcy: Unlike some stablecoins that are pegged to commercial bank deposits (like USDC during the Silicon Valley Bank crisis), USD0 aims to be truly independent of traditional bank risk.
They also have a “useless governance token,” but it might not be that useless:
It grants ownership over actual protocol revenues, 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 crypto circles.
Perhaps most interestingly, Usual is allocating 90% of the supply to the community. This is a bold move in a space where founders and venture capitalists typically keep the majority of the supply for themselves.
Challenges and Issues
Of course, it hasn’t all been smooth sailing. Usual faces some significant challenges:
Regulatory scrutiny: Anything involving U.S. Treasuries is bound to attract the attention of regulators. 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 a stablecoin backed by treasuries instead of dollars?
Potential Impacts
If these new stablecoin models actually work (work, as in they’ll actually become relevant and widely used, not just as a speculative anecdote), we could see some big shifts in DeFi:
- More capital-efficient lending
- New types of yield-generating strategies
- Potentially reduced systemic risk (or just new, more exciting types of risk)
To be honest, when I see these new stablecoin platforms, part of me is thinking, “Didn’t we learn our lesson?” 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 that’s what cryptocurrencies do best: take existing financial concepts, add some complexity and risk, and somehow end up innovating.
In the next installment, I’ll dive deeper into the stablecoin opportunity. Examining Ethena, Usual, Anzen, Elixir USD, and Mountain USD for yield opportunities and the best ways to invest.
3. Gambling Platforms/Prediction Markets
Okay, folks, it’s time to talk about everyone’s favorite hobby: gambling — I mean “speculative predictions.” Because when 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 of the crowd (or collective stupidity) emerge.
Non-Sports Betting vs. Sports Betting
There are two types of crypto prediction markets:
1. Non-Sports Prediction Markets: Betting 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 of 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 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 isn’t alone.
Emerging 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 intriguing with a 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 just about anything without the permission of some old dude who never lost money on some obscure memecoin.
The ultimate form of free speech backed by crypto.
Another revelation is the use of AI in market decision making. Imagine a prediction market where AI can automatically resolve the outcome of such complex and nuanced events without human intervention.
It’s like we’re building a realistic oracle.
Sports
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 for your winnings.
Transparency: All bets and odds are settled on-chain. No more shady bookmakers.
Global access: Place bets anytime, anywhere.
Some crypto sports betting platforms are seeing daily volumes that even small countries would envy.
But this is where things start to get really wild.
There are signs of some pretty high stakes bets in crypto prediction markets. Examples abound: LogX Trade is building perpetual futures for “what if” things like Trump win. Because regular betting isn’t risky enough, so… anything could go wrong, right?
But don’t forget that low-key prediction markets exist in memecoin, too.
$TRUMP and $BODEN tokens are little more than proxy bets on the outcome of the election; 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 very interesting to watch.
Looking to the future, I ask myself: Will decentralized prediction markets become a standard tool for business and governance decisions, or will having a child one day require consulting the almighty blockchain for its opinion on fertility issues?
One thing is certain: the lines between gambling, investing, and prediction have become very blurred in crypto prediction markets.
The possibilities are both exciting and terrifying.
The Future of Prediction
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: Could we see prediction markets influence policy decisions?
- Make micro-predictions about everything: bet on tomorrow’s weather, likes on a tweet, or whether my crush will finally notice me.
Think of it this way, too: Another innovative solution involves using a yield-bearing stablecoin, 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 settle until November. So bet $1,000 but only spend $200 (5x leverage —> capital efficiency). Actually https://www.levr.bet/ is doing this.
Or you can borrow against your position as collateral. This approach can make prediction markets more attractive.
Your $1,000 bet on Trump —> a loan of $500, which can be used for anything.
The potential here is incredible. We are talking about a world where collective intelligence comes together 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 combined and had a baby, and that baby liked gambling.
But let’s not get too excited, we still have some hurdles to overcome:
- Regulatory challenges: Governments aren’t too keen on unregulated gambling apps. It’s like magic, isn’t it?
The oracle problem: How do you ensure that bets are settled fairly and accurately?
- Market manipulation: With greater liquidity comes greater liability, and the potential for serious disruption.
The future is unpredictable
The situation is changing rapidly. From secondary OTC markets that offer a lifeline to locked-in token holders, to innovative stablecoins that challenge our notions of value, to prediction markets that let you bet on almost 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 of 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 I’ll be here, strapping 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 the latest innovation is missing it entirely.
Remember, Anonymous: the future isn’t set, but with these new tools, we just might 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?
Still, anonymous, be safe out there!
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