Venture capital firms and angel investors are reportedly circumventing lock-up periods for crypto tokens by using market-making firms to trade them off-market.
Constructing ‘Two-Sided Books’
Some venture capital (VC) firms and angel investors reportedly have devised methods enabling them to offload locked-up tokens before they can be traded on the open market. According to a Bloomberg report, market-making firms are said to be helping investors bypass arrangements that control how locked-up tokens are injected into circulation.
As per the report, market-making firms such as Wintermute, Flowdesk and Caladan are facilitating such trades. GSR and Nomura Holdings Inc.’s Laser Digital also are involved in this practice, which eases pressure on some VCs who have seen their prospects of generating tangible returns diminish in recent weeks.
Joshua Lim, co-head of Markets at Falconx Global, said market makers implicated in this practice are “constructing two-sided books on these tokens that exist outside of the centralized exchanges.” David Bachelier, chief markets officer at Flowdesk, is quoted in the report confirming the existence of a secondary market for locked-up tokens.
“Since mid-2023, we’ve witnessed a rapidly developing secondary market for locked tokens. While it’s not yet a fully functional two-way market for various reasons, the demand suggests significant potential for innovation and growth,” Bachelier said.
Wintermute’s Jonathan Chan echoed the same sentiments and added that individual investors too are also keen on using these tokens for hedging purposes. While this can be done with the express permission of the crypto project that issued the tokens, unnamed sources in the Bloomberg report suggested this practice can still be carried out without such permission.
Meanwhile, some critics in the crypto industry have expressed displeasure at the practice, which they argue hurts the concerned projects. One such critic, José Maria Macedo, criticized VCs and angel investors engaged in this practice.
“Unpopular opinion: Angels/VCs who hedge locked tokens without team permission are rats. They’re directly hurting projects by dumping on the founders they’re supposed to be backing. Teams should be more aggressive in suing these rats for breach of contract + name and shaming so others can avoid,” Macedo said.
He argues that the only scenario under which this practice benefits everyone is when a project approves the secondary sale.
