Author: danny; Source: X, @agintender
With the issuance of new-generation cryptocurrencies such as Monad, MMT, and MegaETH, many retail investors participating in IPOs face a common problem: how to secure high paper profits?
The general hedging strategy is to open an equivalent short position in the futures market after acquiring the spot price, thereby locking in profits. However, this strategy often becomes a "trap" for retail investors with new cryptocurrencies. Due to the poor liquidity of new coin contracts and the large amount of tokens waiting to be unlocked in the market, "malicious individuals" can use high leverage, high funding rates, and precise price manipulation to force retail investors' short positions to be liquidated, reducing their profits to zero.
For retail investors lacking bargaining power and OTC channels, this is almost an unsolvable game. Faced with attacks from market makers, retail investors must abandon traditional 100% precise hedging and instead adopt a diversified, low-leverage defensive strategy: (shifting from a profit-management mindset to a risk-management mindset) Cross-exchange hedging: Open a short position on a highly liquid exchange (as the primary locking position), and simultaneously open a long position on a less liquid exchange (as a liquidation buffer). This "cross-market hedging" significantly increases the cost and difficulty for market makers to attack, while also allowing for arbitrage by exploiting differences in funding rates between different exchanges. In the highly volatile environment of new cryptocurrencies, any strategy involving leverage carries risk. The ultimate victory for retail investors lies in adopting multiple defensive measures to transform the risk of liquidation from a "certain event" into a "cost event," until they can safely exit the market. I. The Real Dilemma of Retail Investors Participating in IPOs - No Profit Without Hedging, Hedging Leads to Targeting In actual IPO scenarios, retail investors face two main "timing" dilemmas: Futures Hedging: Retail investors receive **futures tokens** or **locked-up shares** before the market opens, not the spot market. At this time, the market already has contracts (or IOUs), but the spot market has not yet circulated.
Spot Restricted Hedging (Post-Launch Restrictions): Although spot assets have entered wallets, they cannot be sold immediately and efficiently due to limitations in withdrawal/transfer time, extremely poor liquidity in the spot market, or exchange system congestion.
Let me share some archival information: Back in October 2023, Binance had a similar spot pre-market product for spot hedging, but it was suspended, possibly due to the need for a launch pool or poor data (the first product at the time was Scroll). This product could have effectively solved the pre-market hedging problem, which is a pity.
Therefore, this market version emerged, the futures hedging strategy—where traders anticipate acquiring spot assets and open a short position in the futures market at a higher-than-expected price to lock in profits.
II. Upgraded Hedging Strategy - Chain Hedging
Leaving aside the complex calculations of the target's beta and alpha, and using correlation with other mainstream coins for hedging, I propose a relatively easy-to-understand "hedging after hedging" (chain hedging?!) strategy.
In short, it's about adding another hedging position to the hedging position. That is, when opening a short position for hedging, also open a long position at an opportune time to prevent the main short position from being forcibly liquidated.
This involves sacrificing some profits for a safety margin. **Note:** This doesn't completely solve the problem of margin calls, but it reduces the risk of being targeted by market manipulators on specific exchanges. It also allows for arbitrage using funding rates (provided that: 1. stop-loss and take-profit points are set; 2. the opening price is cost-effective; 3. hedging is a strategy, not a belief, and doesn't need to be followed forever). So, where should you open short positions? Where should you open long positions? III. Hedging Strategy Based on Liquidity Differences Core Idea: Utilizing liquidity differences for position hedging. In exchanges with good liquidity and more stable pre-market mechanisms, open short positions. Taking advantage of their greater depth, market makers need to invest more capital to liquidate short positions. This significantly increases the cost of sniping, serving as a primary profit-locking point. In exchanges with poor liquidity and high volatility, open long positions to hedge the short position in exchange A. If exchange A experiences a violent price surge, the long position in exchange B will follow suit, offsetting the losses in exchange A. Exchanges with poor liquidity are more prone to sharp price surges. If the prices of exchange A and exchange B move in tandem, the long position in exchange B will quickly generate profits, offsetting any potential losses from the short position in exchange A. IV. Calculation of the Re-hedging Strategy Assume 10,000 units of ABC in the spot market. Assume the value of ABC is $1.
Empty Position: Exchange A (Stable) $10,000
Long Position: Exchange B (Poor Liquidity) $3,300 (e.g., ⅓, this value can be inferred from expected returns)
Spot Trading: 10,000 ABC Value $10,000
Scenario A. Price Surge (Market Manipulation)
ABC Spot Trading: Value Increase.
Short position on Exchange A: Unrealized losses increase, but due to high liquidity, the difficulty of liquidation is much higher than in the previous scenario.
Long position on Exchange B: Value surges, offsetting the unrealized losses on Exchange A, making the overall position relatively stable. (Stop-profit and stop-loss orders must be set.)
Scenario B. Price Crash (Market Selling Pressure)
ABC Spot: Value declines.
Short position on Exchange A: Unrealized profits increase.
Short position on Exchange A.
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