With the issuance of new-generation cryptocurrencies like Monad, MMT, and MegaETH, many retail investors participating in initial offerings face a common dilemma: how to convert substantial paper profits into actual gains?

The typical hedging strategy involves taking possession of the spot asset and then opening a corresponding 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, "malicious actors" can use high leverage, high funding rates, and precise manipulation to forcefully liquidate 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 the 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 in a liquid exchange (as the primary lock-in position) while simultaneously opening a long position in another exchange with poor liquidity (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 to transform the risk of liquidation from a "certain event" into a "cost event," until they can safely exit the market.

1. The Real Dilemma for Retail Investors - No Hedging, No Profit; Hedging Gets Sniped

In actual initial offering scenarios, retail investors face two main "timing" dilemmas:

1. Futures Hedging (Pre-Launch Hedging): Retail investors receive futures tokens or locked share certificates before the market opens, rather than spot assets. At this point, there are already contracts (or IOU certificates) in the market, but the spot assets have not yet circulated.
2. Spot Restrictions on Hedging (Post-Launch Restrictions): Although the spot assets have entered wallets, due to withdrawal/transfer time restrictions, extremely poor liquidity in the spot market, or exchange system congestion, they cannot be sold immediately and efficiently.

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 target 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 spot assets 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 price in the futures market 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 significant.

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: due to the current poor market liquidity, even opening a short position may still be subject to sniper tactics. So what should we do?

2. 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 "post-hedging re-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 also opportunistically opens a long position to prevent the main short position from facing forced liquidation. This sacrifices some 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 blindly).

Where should we open short and long positions?

3. Re-Hedging Strategy Based on Liquidity Differences

Core Idea: Use Liquidity Differences for Position Hedging

Open a short position in a liquid exchange with a more stable pre-market mechanism, utilizing its depth so that market makers need to invest significantly more capital to push the short position to liquidation. This greatly increases the cost of sniper tactics, serving as the primary profit lock-in position.

Open a long position in an exchange with poorer liquidity and high volatility to hedge against the short position in Exchange A. If A is violently pushed up, the long position in B will also rise, compensating for the losses in A. Exchanges with poor liquidity are more prone to significant price increases. If the prices of A and B move in sync, the long position in B will quickly profit, offsetting any potential losses from the short position in A.

4. 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 (poor liquidity) $3,300 (for example, ⅓, this value can be inferred from expected returns)
• Spot: 10,000 ABC valued at $10,000

Scenario A. Price Soars (Market Maker Pushes Price Up)

• ABC Spot: Value increases.
• Short Position in Exchange A: Unrealized losses increase, but due to good liquidity, the difficulty of liquidation is much higher than in the previous scenario.
• Long Position in Exchange B: Value skyrockets, compensating for the unrealized losses in 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 in Exchange A: Unrealized gains increase.
• Long Position in Exchange B: Unrealized losses increase.

Since the short position in Exchange A has a $10,000 exposure, which is greater than the $3,300 long position in Exchange B, when the market declines, the profits in A exceed the losses in B, resulting in a net profit. The decline in the spot price is offset by the profits from the short position. (The premise of this strategy is that the hedged returns must be sufficiently high.)

5. Core of the Strategy: Sacrifice Profits, Reduce Risks

The brilliance of this strategy lies in: placing the most dangerous position (long) in an exchange with poor liquidity, while placing the position that needs the most protection (short) in a relatively safe exchange.

If a market maker wants to push the short position in Exchange A to liquidation, they must:

1. Invest a large amount of capital to overcome the deep liquidity of Exchange A.
2. The price they push up will simultaneously profit the long position in Exchange B.

The difficulty and cost of sniping are geometrically increased, making the market maker's operations unprofitable.

This strategy 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:

1. If expected returns are poor, it’s better to wash up and sleep, doing nothing;
2. If after reading this, you find the mechanism too complex—then that’s right, you shouldn’t participate blindly;
3. The smart ones among you may realize that the relationship between the short and long positions is a "synthetic position," and understanding this principle is more important than making any trades;
4. The main purpose of this article is to tell you: don’t operate blindly, don’t participate blindly, just observe; if you really don’t know what to do, buy some BTC.

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