Original author: Route 2 FI
Original translation: TechFlow
I see more and more traders on Twitter starting to buy altcoins. Currently, many believe that OG DeFi tokens will return to the market (such as Aave now).
Personally, I am locked up in a lot of altcoins, mostly through OTC or angel funding, and I also have a nice stash of $ETH.
Today I want to talk about a tweet I sent out a few weeks ago:
These three categories are important, but let’s dig a little deeper into each of them to see why they’re interesting and why there’s a lot of innovation going on in this space right now.
OTC Markets, Stablecoins, and Prediction Platforms
Imagine this: you wake up to find that your locked tokens are suddenly worth 100x, but you have to wait a year to access them.
Imagine a world where your locked tokens no longer sit idle, stablecoins are no longer boring, and you can bet on the future with pinpoint accuracy…
Let’s start by talking about the secondary market.
1. OTC secondary market
Remember when Binance had a major influence on the FTX crash? It was a crazy time. Due to a lack of OTC liquidity, Binance started selling their $FTT tokens on the market. Investors holding locked/staked/locked FTT hoped to seamlessly sell their positions to anyone at a significantly lower price.
The incident highlights a big question in crypto: What do you do when you’re sitting on locked tokens that are a potential gold mine (or a ticking time bomb)?
This is where the secondary market for OTC transactions comes in.
Not just for whales
First, let me explain briefly.
Over-the-counter (OTC) trading in the crypto space refers to transactions conducted directly between parties rather than through traditional exchanges. Historically, this area has been dominated by large players conducting major transactions that they do not want to be made public.
But now OTC is no longer just for whales. With the surge in token sales, airdrops, and lock-up schedules, the need for more convenient OTC solutions is increasing.
This is where the secondary market comes in.
Why is the secondary market important?
Imagine this: you are an early contributor to a promising project. The token’s current fully diluted valuation (FDV) is as high as $10 billion, and you entered the market at a valuation of only $100 million. Congratulations, you have already increased 100 times on paper!
But there’s a catch – you’re locked in for another 36 months.
This scenario isn’t just a thought experiment; it’s happening all over crypto. Early investors are sitting on potential wealth but are trapped by lockup schedules and lockup periods. Secondary markets offer a way out — or at least a way for you to realize some of that value now.
Currently, there are a few projects trying to solve this problem: Stix, OffX, Http OTC, and Secondary Lane.
How they work
Typically, the process is as follows:
You present your SAFT (Simple Agreement for Future Tokens) to prove that you actually own the tokens you want to sell.
The platform presents your offer to a closed group of potential buyers.
If interested, you'll need to get legal approval (because, after all, there are securities laws and those pesky things).
Depending on the terms of the agreement, you may also need to obtain approval from the agreement itself.
It’s not as simple as listing an exchange on Uniswap, but it could be a lifeline for those sitting on locked tokens.
Tokenized SAFT and Decentralized OTC
Now, things get more interesting.
What if we start tokenizing the SAFT itself, or creating other derivatives based on locked tokens? Imagine being able to trade shares of future token distributions. We already have liquid staking, why not take it a step further and introduce liquid locks?
Let’s add to that a fully decentralized OTC market to seamlessly trade these derivatives. No intermediaries, no closed groups — pure, permissionless trading of locked assets. Sounds good in theory, but the regulatory challenges are… you know.
And, yes, secondary markets for OTC exchanges aren’t all sunshine and sports cars. They may increase liquidity and price discovery, which is great, but there are some serious problems:
Insider Trading: What happens when team members start selling tokens before bad news comes?
Market Manipulation: Due to relatively low liquidity, these markets can be prime targets for pump and dump schemes.
Regulatory Nightmare: The SEC already casts a skeptical eye on the crypto industry. Adding another layer of complexity isn’t going to make them any happier.
The Future of OTC Secondary Markets
So where is this all going? If I had to bet (more on this in part 3 of the article), I’d say we’re going to see a lot more innovation in this space. The need is there, and in crypto, needs often breed solutions — for better or for worse.
We might see:
More complex derivatives based on locked tokens
Integration with DeFi protocols to improve liquidity and lending.
A fully decentralized, regulatory compliant platform that serves everyone, including global institutional investors.
One thing is certain: as long as more and more projects essentially come with lock-up periods and token staking plans, there will be a demand for secondary markets.
Whether they will ultimately have a positive impact on the ecosystem remains to be seen.
But that's part of the fun, right?
So how do you transfer locked tokens in a mutually acceptable contract? Is this possible without communicating with the DeFi protocol or startup team?
What if it were possible to create a contract (smart contract address) that would transfer/withdraw tokens to the exact address with the exact ticker?
For example:
Bob will receive Monad tokens after 6 months (15% at TGE). 85% in the next 36 months. Bob’s wallet address is 0x….. Currently his tokens are valued at 5 billion (token valuation) and the paper value of all tokens is $200,000.
Karen wants to buy the tokens for $100,000 (50% discount = $2.5 billion valuation) because she has to accept a 36-month lock-up clause.
Bob goes into his wallet, the protocol sends him the tokens, and he signs the message from Karen, causing all future tokens to be automatically transferred to Karen. 15% at the TGE and monthly transfers for the next 36 months.
Not sure if this is possible today, but it should be possible to create a token standard for this.
risk:
Bob tells the protocol that he wants to change the payment address. So it's best to get in touch with the team.
FYI, I don't remember the valuation of Monad, this is just an example.
I'm not sure how this OTC secondary issue will be resolved without interacting with the team/legal, but that would be the dream. Make OTC sales easy.
2. Innovative stablecoin platform
Let’s talk about stablecoins. But we’re not talking about the old-school USDT or USDC, we’re talking about those fancy and fascinating 2.0 stablecoins. Because let’s be honest, with all the recent 20% daily volatility, a little more stability would be nice.
Furthermore, stablecoins are the cornerstone of decentralized finance (DeFi), a safe haven in the storm, and something you probably wished you had moved into before the last crash.
However, traditional stablecoins like USDC and USDT have some problems:
They are centralized, which means there is a risk of a single point of failure
They face ongoing regulatory challenges
They are not capital efficient
However, we have some projects that are trying to solve these problems and perhaps create some new ones in the process.
USDe on Ethena
Let’s focus on Ethena, because they’re 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.
USDe works (in theory) as follows:
You deposit staked ETH (e.g. stETH) as collateral.
Ethena opens a corresponding short position on the derivatives exchange.
You will receive USDe tokens in return.
The idea is to hedge against ETH price fluctuations through short positions, thereby keeping the value stable. It's like playing on a seesaw and hoping you don't fall off.
Basically, you can stake your USDe for sUSDe and earn yield from it:
Staking rewards from ETH collateral
Funding and basis gains from 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 cumbersome.
Smart Contract Risk: Because DeFi wouldn’t be complete without the threat of hackers, right?
Ethena has an insurance fund to cover some of these risks, but in crypto, we know that “insurance” often means “the first thing to go when things go bad.”
While Ethena is gaining attention, they are not the only team trying to reinvent stablecoins:
Usual Money
Usual’s core positioning is a secure and decentralized fiat stablecoin issuer. They are building a multi-chain infrastructure that aggregates tokenized real-world assets (RWAs) from large players such as BlackRock, Ondo, Mountain Protocol, etc.
The end goal? Convert these RWAs into a permissionless, on-chain verifiable, and composable stablecoin called USD 0. 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.
USD 0 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: This stablecoin is backed by actual U.S. Treasuries.
Transparency: Real-time transparent reserves address one of the biggest criticisms facing existing stablecoins.
Bankruptcy Remoteness: Unlike some stablecoins that are pegged to commercial bank deposits (looking at you, USDC during the SVB crisis), USD 0 is designed to be truly decoupled from traditional bank risk.
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 earns more $USUAL, creating a virtuous cycle for long-term holders.
There’s also talk of future buybacks to enhance “real value” — always a welcome move in crypto circles.
Perhaps most interestingly, Usual is allocating 90% of the supply to the community, a bold move in a space where founders and venture capitalists typically retain the majority of shares.
Challenges and Problems
Of course, it wasn’t all smooth sailing. Usual faced some significant challenges:
Regulatory scrutiny: Anything to do with U.S. Treasuries is bound to attract the attention of regulators. How will Usual navigate this complex environment?
Competition: The stablecoin space is highly competitive. Can Usual carve out a significant piece of the market?
Adoption: Will it make any difference for DeFi users to accept a stablecoin backed by treasuries instead of dollars?
Potential impact
If these new stablecoin models actually work (work, meaning they become relevant and widely used, rather than being a speculative anecdote), we may see some major changes in DeFi:
More capital-efficient lending
New Types of Revenue Generating Strategies
Potentially lower systemic risk (or just new, more exciting types of risk)
Honestly, I look at these new stablecoin platforms and wonder, “Didn’t we learn our lesson?” I lived through the UST debacle and it was like getting a root canal by a drunk gorilla.
But another part of me — the part that’s been feeding on hope since 2017 — is excited. Because that’s exactly what crypto is good at: taking existing financial concepts and somehow ending up with something innovative.
In the next issue, I will dive deeper into stablecoin opportunities. Watch for yield opportunities and best investment strategies for Ethena, Usual, Anzen, Elixir USD, and Mountain USD.
3. Prediction Market
Now let's talk about everyone's favorite hobby: speculative forecasting. Why limit betting to just price fluctuations? We can bet on anything!
Imagine how much fun it would be 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 flash of insight could make you rich (or, indeed, make you lose a small fortune).
Prediction markets are nothing new, but blockchain technology is revolutionizing them. The concept is simple: create a market for any future event, let people buy and sell based on their predictions, and then see how the wisdom (or collective stupidity) of the crowd pans out.
Non-Sports and Sports Betting
In the crypto prediction market, we have two options:
Non-sports prediction markets: You can bet on anything from interest rate cuts to whether Vitalik will wear a suit.
Sports Betting: When you want to combine your gambling addiction with your love for sports.
Polymarket
Let’s look at an example of a crypto prediction market: Polymarket.
How does it work?
Just build a market around any yes/no question and let people trade. That's it!
Popular markets include politics, crypto events, celebrity gossip—you name it, there’s someone willing to bet on it.
But Polymarket isn’t the only one.
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 attracting users with a unique centralized betting system.
One of the most exciting developments in this space is permissionless markets. Imagine being able to create a prediction market on anything without needing permission from some old dude who never lost a few thousand dollars on some obscure meme coin.
This is the ultimate form of free speech powered by encryption.
Another implication is the use of AI in market resolution. Imagine a prediction market where AI can automatically resolve the outcomes of complex and nuanced events without human intervention.
It's like we're constructing an oracle of reality.
physical education
Let’s talk about putting your ETH to work in sports. SX Bet, Azuro, and Overtime are bringing sports betting into the Web3 era:
Instant Payouts: No more waiting days to withdraw your winnings.
Transparency: All bets are settled on-chain, along with the odds. No more shady bookmakers.
Global Access: Bet anywhere, anytime.
The daily trading volumes of some crypto sports betting platforms are even the envy of some small countries.
But things get even crazier.
There are signs of some pretty high-leverage betting happening in crypto prediction markets. Examples are everywhere: LogX Trade is building perpetual futures contracts for “what ifs” like Trump’s election
But don’t forget that low-key prediction markets also exist in meme coins.
TRUMP and BODEN tokens are nothing more than proxy bets on the election outcome; holders are nothing more than speculators on who will win and how others will fare.
It’s like meta-betting, and it’s really fun to watch.
Looking to the future, I ask myself: Will decentralized prediction markets become a standard tool for business and governance decision-making, or will the almighty blockchain one day need to be consulted when having a baby?
One thing is certain: in crypto prediction markets, the lines between gambling, investing, and forecasting become incredibly blurred.
The possibilities are both exciting and terrifying.
Predicted Future
So where is this all going? If I had to place a bet (and apparently, I have to), I’d say we’re facing a future where the lines between prediction markets, traditional finance, and everyday decision making get really blurry — really, really blurry. What can we expect?
Create a Marketplace and Solve It with AI: Imagine when markets are automatically generated around trending topics, with AI handling the determination of all outcomes.
Combine this with real-world governance: Can we see prediction markets influencing policy decisions?
Make micro-predictions for everything: place bets on tomorrow’s weather, the number of likes on a tweet, or whether my crush will 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 holdings.
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 spend $200 (5x leverage -> capital efficiency). In fact, Levr bet does this.
Or you can borrow against your position. This can make prediction markets more attractive.
Your $1, 000 Trump bet —> loan of 500 USDC, which can be used for anything.
The potential here is staggering. We are talking about a world where collective intelligence is connected in real time, information has a price, and is traded as efficiently as a stock.
It's like Wikipedia and Wall Street got together and had a baby, and that baby has a penchant for gambling.
But don’t get too excited yet, we still have a few hurdles to overcome:
Regulatory challenges: Governments aren’t too keen on unregulated gambling-based apps. It’s like magic, huh?
The Oracle Problem: How do you ensure that the resolution of bets occurs in a fair and accurate manner?
Market manipulation: With high liquidity comes high responsibility—and the potential for severe disruptions.
The future is unpredictable
The landscape is changing fast. From secondary OTC markets that provide locked-in token holders with a fighting chance to survive, 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 crypto adoption, or will they just allow degens to lose money in more complicated ways?
Honestly, it’s probably a bit of both.
What I do know is this: I am constantly amazed by the creativity and audacity in crypto. Just when you think you’ve seen it all, someone comes along and creates an AI-driven, quantum-entangled, blockchain-based solution to a problem you didn’t even know existed.
So what happens next? I don't know.
But here I will be, ready for the challenge of possibly making unwise bets on prediction markets and chasing any new stablecoin that promises untold riches.
Because in the crypto world, the only thing crazier than missing out on the latest innovation is missing out on it completely.
Remember, Anonymous: the future hasn’t been written yet, but with these new tools, we might be able to place our bets on it.
Just make sure you don’t bet more than you can afford to lose. This isn’t investment advice, of course — but then, in this wild west of finance, who’s to say what counts as investment advice?
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