Author: danny
With the issuance of new generation cryptocurrencies like Monad, MMT, and MegaETH, many retail investors participating in new token launches face a common dilemma: How to secure substantial paper profits?
The typical hedging strategy involves taking possession of the spot asset and opening an equivalent short position in the futures market to lock in profits. However, this strategy often becomes a "trap" for retail investors with new tokens. Due to poor liquidity in new token contracts and a large number of tokens awaiting unlocking in the market, "interested parties" can use high leverage, high funding rates, and precise manipulation to forcefully close retail investors' short positions, reducing their profits to zero. For retail investors lacking bargaining power and OTC channels, this is almost an unsolvable game.
Faced with the sniper tactics of market makers, retail investors must abandon traditional 100% precise hedging and instead adopt a diversified, low-leverage defensive strategy: (shifting from a mindset of managing returns to managing risks)
Cross-Exchange Hedging: Open a short position on a liquid exchange (as the primary profit lock), while simultaneously opening a long position on a less liquid exchange (as a buffer against liquidation). This "cross-market hedging" significantly increases the cost and difficulty for market makers to execute their sniper tactics, while also allowing for arbitrage based on the differences in funding rates between exchanges.
In the highly volatile environment of new tokens, any strategy involving leverage carries risks. The ultimate victory for retail investors lies in adopting multiple defensive measures, transforming the risk of liquidation from a "certain event" into a "cost event," until they can safely exit the market.
I. The Real Dilemma for Retail Investors in New Token Launches - No Hedging, No Profit; Hedging Gets Sniped
In actual new token launch scenarios, retail investors face two main "timing" dilemmas:
Futures Hedging (Pre-Launch Hedging): Retail investors receive futures tokens or locked share certificates before the market opens, rather than the spot asset. At this point, there are already contracts (or IOU certificates) in the market, but the spot asset has not yet circulated.
Spot Restrictions on Hedging (Post-Launch Restrictions): Although the spot asset has entered the wallet, it cannot be sold immediately and efficiently due to withdrawal/transfer time restrictions, extremely poor liquidity in the spot market, or exchange system congestion.
Let me remind you of something: back in October 2023, Binance had a similar spot pre-market product for spot hedging, but it was likely paused due to needing a launch pool or poor data (the first token at that time was Scroll). This product could have effectively solved the pre-market hedging issue, but unfortunately, it was discontinued.
Thus, this market version emerges, where the futures hedging strategy—traders expect to receive the spot asset and open a short position in the futures market at a price higher than expected to lock in profits.
Remember: the purpose of hedging is to lock in profits, but the key is to manage risks; if necessary, one should sacrifice some profits to ensure position safety.
Key Point of Hedging: Only Open Short Positions at High Profit Prices
For example, if your ICO price is 0.1 and the futures market price is 1, at 10x leverage, the cost-effectiveness of "risking" a short position is relatively high. First, it locks in a 9x return, and second, the cost for manipulators to push the price higher is also relatively high.
However, in practice, many people blindly open short positions for hedging without considering the opening price (assuming an expected return of 20%, which is actually unnecessary).
The difficulty of pushing the price from an FDV of 1 billion to 1.5 billion is far greater than from an FDV of 500 million to 1 billion, even though both involve an absolute increase of 500 million.
Then the question arises: because the current market liquidity is poor, even opening a short position may still be subject to sniping. So what should we do?
II. Upgraded Hedging Strategy - Chain Hedging
Setting aside the more complex calculations of the target's beta and alpha, and the correlation with other mainstream coins for hedging, I propose a relatively easy-to-understand "hedging after hedging" (chain hedging?!) strategy.
In short, it involves adding another hedge to the hedged position, meaning that when opening a short position for hedging, one should also opportunistically open a long position to prevent the main short position from facing forced liquidation. This sacrifices a certain amount of profit in exchange for a safety margin.
Note: It cannot 100% solve the liquidation problem, but it can reduce the risk of being targeted by specific exchange market makers while also allowing for arbitrage based on funding rates (provided that 1. stop-loss and take-profit points are set properly; 2. the opening price is cost-effective; 3. hedging is a strategy, not a belief, and does not need to be followed to the end).
Where should we open short positions? Where should we open long positions?
III. Re-Hedging Strategy Based on Liquidity Differences
Core Idea: Use liquidity differences for position hedging
Open a short position on a liquid exchange with a more stable pre-market mechanism, utilizing its depth, which requires market makers to invest significantly more capital to push the short position to liquidation. This greatly increases the cost of sniping, serving as the primary profit lock;
Open a long position on a less liquid and highly volatile exchange to hedge the short position of A. If A is violently pushed up, the long position in B will also rise, compensating for A's losses. Less liquid exchanges are more prone to significant price increases. If the prices of A and B are synchronized, the long position in exchange B will quickly profit, which can offset any potential losses from the short position in exchange A.
IV. Calculation of the Re-Hedging Strategy
Assume 10,000 ABC spot assets. Assume ABC is valued at $1.
Short Position: Exchange A (stable) $10,000
Long Position: Exchange B (less liquid) $3,300 (for example, ⅓, this value can be inferred from expected returns)
Spot Asset: 10,000 ABC valued at $10,000
Scenario A. Price Soars (Market Maker Pushes Price Up)
ABC Spot: Value increases.
Short Position on Exchange A: Unrealized losses increase, but due to good liquidity, the difficulty of liquidation is much higher than in the previous scenario.
Long Position on Exchange B: Value skyrockets, compensating for the unrealized losses on Exchange A, making the overall position relatively stable. (Stop-loss and take-profit must be set properly)
Scenario B. Price Plummets (Market Selling Pressure)
ABC Spot: Value decreases.
Short Position on Exchange A: Unrealized gains increase.
Long Position on Exchange B: Unrealized losses increase.
Since the exposure of the short position on Exchange A is $10,000, which is greater than the long position on Exchange B of $3,300, when the market declines, the profit from A exceeds the loss from B, resulting in a net profit. The decline in the spot asset is offset by the profit from the short position. (The premise of this strategy is that the hedged returns must be sufficiently high.)
V. Core of the Strategy: Sacrifice Profits, Reduce Risks
The brilliance of this strategy lies in: placing the most dangerous position (long) on a less liquid exchange, while placing the position that needs the most protection (short) on a relatively safe exchange.
If a market maker wants to push the short position on Exchange A to liquidation, they must:
Invest a large amount of capital to overcome the deep liquidity of Exchange A.
The price they push up will simultaneously profit the long position on Exchange B.
The difficulty and cost of sniping are geometrically increased, making the market maker's operation unprofitable.
This utilizes market structure (liquidity differences) to establish defenses and leverages funding rate differences to generate additional profits (if any).
Finally, if there are any serious takeaways:
If expected returns are poor, it’s better to wash up and sleep, doing nothing;
If after reading this you find the mechanism complex—this is correct, then you should not participate blindly;
The smart ones among you may notice that the relationship between the short and long positions is a "synthetic position," and understanding this principle is more important than making any trades;
The main purpose of this article is to tell you: do not operate blindly, do not participate blindly, just take a look, and if you really don’t know what to do? Buy some BTC.
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