OTC Token Trading: Institutions Make Steady Profits, Retail Investors Pay the Bills?

Investor sentiment and market temperature

Amidst the bull market's optimism, retail investors often feel exploited. Cointelegraph reported that Jelle Buth, co-founder of market maker Enflux, bluntly stated, "I never want to work in retail again." This stark statement has ignited retail investors' anxieties and reflected the harsh realities of the market: asymmetric funding and information puts retail investors at a natural disadvantage.

The institution's logic of stable profit

According to data from Enflux, funds and market makers typically receive token allocations at a 30% discount , with vesting periods of three to four months. At the same time, they short an equivalent amount in the perpetual futures market to lock in risk.

• Profit calculation : 30% discount profit in 4 months, equivalent to approximately 90% annualized return (APY) .

• Return range : Some cases have an annualized rate of return of 60%-120% (Cointelegraph).

This model is similar to "convertible bond hedging" in traditional finance, but is almost free from regulatory disclosure constraints in the cryptocurrency market.

Invisible risks for retail investors

The biggest dilemma for retail investors is information lag and selling pressure :

1. Lack of transparency : Many project announcements simply mention “X million USD raised” without disclosing discounts and vesting periods (Douglas Colkitt, Cointelegraph).

2. Market pressure : When tokens are unlocked, short positions and discounted chips that institutions have pre-positioned will flood into the market, directly impacting retail investors’ holdings.

3. Additional costs : Negative funding rates for perpetual futures may erode institutional returns, but this remains a manageable risk compared to the price volatility experienced by retail investors (Jelle Buth).

Ultimately, retail investors are often forced to take on the role of buying during "price drops."

Insiders have different access rights to tokens compared to retail traders.

Why is OTC still the norm?

• Project needs : Private token sales can quickly bring in millions of dollars in funding for R&D and marketing without having to withstand the drastic fluctuations of the public market.

• Fund needs : Funds do not have to take risks in pre-seed equity, but can obtain stable cash flow through tokens + hedging.

• Market drivers : Discounted placements and hedging mechanisms have become an open secret within the industry, “one of the worst-kept secrets in crypto” (Colkitt).

Investor Advice and Direction

For ordinary investors, it is not realistic to completely avoid the selling pressure caused by OTC exchanges. However, the following points are worth considering:

• Identify information gaps : When new projects announce funding, look for hidden discounts or short-term unlocking.

• Be wary of selling pressure windows : The unlocking period often corresponds to market volatility risks, and positions should be adjusted to avoid being passively hit.

• Diversification : Don’t concentrate your positions on a single token. Use stablecoins, blue-chip tokens or index products to diversify risks.

This is not a negative "retail investor fatalism", but a compulsory course for rationally responding to market mechanisms.

Over-the-counter token trading allows institutions to easily lock in returns, but puts retail investors at the forefront.
As an investor, understanding market rules and mastering risk windows are the first steps to gain a foothold in the crypto market.

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Further reading

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