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Circle Senior Director of EU Strategy and Policy Patrick Hansen said the EU now has about 35 regulated e-money tokens issued by 21 entities, but only USDC, USDG and EURC among the world’s top 50 stablecoins comply with MiCA. He said the framework’s review should improve competitiveness, strengthen global regulatory coordination and establish a recognition regime for foreign-regulated stablecoins.

K33 Research said Bitcoin market activity remained subdued in July, with average daily spot trading volume at about $2.2 billion, potentially marking the lowest monthly average since November 2023. BTC fell around 3% over the past week and remained range-bound between $60k and $66k, while CME Bitcoin futures open interest stayed near multi-year lows and perpetual futures open interest stood at roughly 300k BTC.

In this episode of the WuBlockchain podcast, we speak with hedge fund manager Kuan, looking back at the journey of the crypto exchange BitMEX from an industry pioneer to its closure. Combining financial engineering with practical trading experience, Kuan analyzes how BitMEX — through perpetual contracts, funding rates, mark prices, insurance funds, and auto-deleveraging (ADL) mechanisms — resolved the fragmented liquidity and expiration rollover issues of traditional futures contracts, becoming a crucial price discovery market during the bear market.
The conversation also covers the “3.12” crash, the cascading liquidation risks of inverse contracts, and the reasons behind BitMEX’s user exodus, which included regulatory pressure, sluggish product iteration, and a subpar operational experience. As platforms like Bybit absorbed its user base and shifted toward USDT-margined trading and a “super-app” model, BitMEX’s product advantages gradually faded away.
Kuan believes that the golden era of offshore exchanges thriving on regulatory arbitrage has passed, and the industry will move further toward compliance. Additionally, he notes that there is still room for improvement in perpetual contracts when it comes to small-cap market manipulation, extreme funding rates, and risk management.
The guest’s statements do not represent the views of WuBlockchain and do not constitute any investment advice. Please strictly comply with local laws and regulations. The audio transcription was completed by AI and may contain errors.
Please listen to the full podcast here:
YouTube：
https://youtu.be/jyosC-quWEo
From the ICO Mania to the BitMEX Era
Mao Di: When did you enter the crypto industry? Were you already using BitMEX at the time?
Kuan: I entered the crypto industry in November 2017, at the height of the ICO mania. Investors could buy newly issued tokens and see them listed for trading shortly afterward, creating a powerful wealth effect across the market. My academic background is in financial engineering, and my doctoral research focused on complex derivatives such as options and swaps, as well as their hedging strategies. I later worked with exchanges and project teams on risk management and derivatives design.
When I first entered the industry, ICOs presented the biggest opportunities, while BitMEX had yet to attract much attention. By April or May 2018, however, the crypto market had entered a bear market. Simply going long was no longer effective, so traders began looking for ways to short the market. At the same time, a series of negative incidents at other platforms weakened user trust, helping BitMEX gain popularity among professional traders in China.
Bitcoin fell from nearly $20,000 to around $3,000-$4,000, making shorting one of the few viable ways to generate returns. BitMEX had a clear advantage: its order book depth frequently reached millions of dollars, while many competing platforms offered only thousands or tens of thousands of dollars in depth. It was well ahead of the market in both liquidity and product experience. Relatively mature competitors did not begin to emerge until late 2019.
How Perpetual Contracts Reshaped Crypto Derivatives
Mao Di: What specific problems did BitMEX’s perpetual contracts solve? Before they emerged, how did traders go long, go short, and use leverage?
Kuan: Going long was relatively straightforward: traders could simply buy the spot asset. Going short, however, required borrowing Bitcoin, selling it, and then buying it back later to repay the loan. Leveraged trading also involved borrowing costs, and the available leverage was usually limited. When spot market depth was insufficient, slippage and transaction costs could be extremely high.
Another option was fixed-expiry futures, but contracts with different expiration dates fragmented liquidity. Long-term holders also had to close their positions when a contract expired and reopen them in the next contract. For large participants such as miners who needed continuous hedging, this created significant transaction costs.
Perpetual contracts have no expiration date, allowing liquidity to be concentrated in a single market. Funding rates help keep contract prices aligned with spot prices and prevent the two from diverging for extended periods. BitMEX also introduced mechanisms such as mark prices, a liquidation engine, an insurance fund, and auto-deleveraging, or ADL. These mechanisms have since become standard industry infrastructure, but they were highly complex to design and implement at the time.
Perpetual contracts did not emerge from nothing. The concept of a “perpetual swap” already existed in traditional finance, although it never became a mainstream product. BitMEX’s most important contribution was adapting the concept to the crypto market and building a complete, functional system around it.
Mao Di: Why did perpetual contracts become more popular than fixed-expiry futures?
Kuan: Fixed-expiry futures can trade significantly above or below spot prices for extended periods and only converge with spot prices as expiration approaches. Even when investors correctly predict the direction of the market, they can still lose money because of changes in the basis. Perpetual contracts use funding rates to continuously adjust prices, making the trading experience more intuitive.
The absence of an expiration date also means that users do not need to repeatedly roll over their positions, which makes perpetual contracts particularly suitable for long-term hedging. Concentrating all traders in a single contract also improves market depth. BitMEX further concentrated liquidity through design details such as smaller tick sizes.
Is the Legacy Funding Rate Outdated?
Mao Di: Many exchanges still use a baseline funding rate of 0.01% every eight hours. This parameter was based on BitMEX’s early estimates of USD and Bitcoin borrowing costs, but the market has since shifted toward USDT-margined contracts. Has it become outdated?
Kuan: That is a reasonable assessment. The parameter reflected borrowing costs at the time, but the interest-rate environment has changed considerably, so it may no longer be appropriate. BitMEX later discussed this issue in an official article. When other platforms copied its perpetual contract model, they inherited both the reasonable and less reasonable elements of the original design.
That does not mean exchanges have made no adjustments. Some markets have shortened funding intervals to four hours or one hour, while funding-rate caps and floors also vary across low-liquidity altcoins. Nevertheless, the limitations of perpetual contracts are becoming increasingly apparent in these markets.
Some low-float tokens experience sustained price increases and short squeezes. Short sellers not only face rising prices but may also be required to pay extremely high funding rates every hour. Even when a token eventually declines, short sellers may be forced out beforehand by funding costs or liquidation.
This runs counter to the original purpose of derivatives, which is to support price discovery and risk hedging. An investor might, for example, short a token in advance to hedge against an upcoming token unlock, only to be liquidated because of extreme funding rates and price manipulation. Fixed-expiry futures also carry risks, but because they do not impose recurring funding payments, manipulators must keep pushing prices higher to force short sellers out.
Exchanges currently rely on methods such as linked-account analysis and IP monitoring to manage these risks, but it is extremely difficult to draw a clear line between legitimate trading and market manipulation. The fundamental issue is that not every low-liquidity token is suitable for a derivatives market. In its early years, BitMEX only offered contracts on a small number of major assets, which demonstrated a certain degree of restraint.
Trading and Position Management on BitMEX
Mao Di: What did you primarily trade on BitMEX at the time? How much leverage did you normally use?
Kuan: We mainly traded Bitcoin to hedge other positions rather than speculate on a single direction. We generally kept leverage between 3x and 5x and never exceeded 10x, while continuously monitoring margin levels and risk exposure.
At one point, our accumulated hedging positions placed us on the BitMEX profit leaderboard. That did not mean we were profitable overall, however, because there were corresponding losses on the other side of the hedge. The leaderboard was more of a gamified feature designed to attract traders and stimulate competition.
Did the March 12 Outage Halt the Crash?
Mao Di: During the March 12, 2020 market crash, BitMEX went offline for a period. Some people believe the platform intentionally “pulled the plug,” while others argue that the outage prevented Bitcoin from falling further. What is your view?
Kuan: We were trading through the API throughout that period. Under normal conditions, BitMEX’s server stability and API performance were generally excellent. However, it was also the most active market at the time, and the volume of concurrent orders and API requests surged during extreme market conditions.
Objectively, the outage interrupted the cascade of liquidations, and Bitcoin stabilized at around $3,800. Had the system continued operating, the price might have fallen further. Whether the outage was intentional, however, is something only those directly involved would know. Outsiders cannot prove it.
The sharp, liquidation-driven decline on March 12 was also connected to the inverse contracts that dominated BitMEX at the time. BitMEX was a major price-discovery market, and other platforms followed its price movements. During a downturn, inverse contracts are particularly unfavorable to long positions.
Mao Di: Why do inverse contracts tend to intensify liquidations?
Kuan: Inverse contracts use Bitcoin as collateral. When Bitcoin falls, long positions face three pressures at once: losses on the position itself, a decline in the value of the collateral, and those losses accounting for an increasingly large share of the remaining collateral. This nonlinear structure can easily trigger cascading liquidations.
USDT-margined linear contracts do not create the same threefold pressure. In fact, as Bitcoin’s price falls, the same amount of dollar-denominated capital can absorb a larger quantity of Bitcoin. After the industry shifted toward USDT-margined contracts, this type of downward feedback loop became less severe.
Mao Di: Did you suffer losses at the time?
Kuan: Our overall portfolio was hedged with both long and short positions. During the extreme decline, the losing side was liquidated, effectively acting as a forced stop-loss, while the profitable side continued generating gains. As a result, the portfolio was profitable overall.
ADL then reduced our profitable positions, however, significantly lowering our actual returns.
This was not the result of correctly predicting the market in advance. It was simply the outcome produced by our hedging structure under extreme conditions. The March 12 crash also demonstrated that even a directionally neutral strategy remains exposed to liquidation mechanisms, system-capacity constraints, and ADL.
Why BitMEX Lost Its Market Share
Mao Di: After US regulators took action against BitMEX, its market share continued to decline. Was regulation the main reason, or did its products also fail to keep pace with the market?
Kuan: Regulation was a major factor. At the time, BitMEX did not require KYC, but it strictly restricted access from certain regions based on IP addresses. Once the system determined that an account came from a restricted region, it would immediately place the account in reduce-only and withdrawal-only mode, with almost no opportunity to appeal.
For professional traders, this meant closing positions, transferring funds, and rebuilding those positions on another platform. The process involved trading fees, slippage, and market-impact costs. By late 2019, it had become increasingly difficult for us to continue using BitMEX, so we had to look for alternatives.
The operational experience was another problem. In its early years, BitMEX processed withdrawals only once a day in batches, making it difficult to move additional margin onto the platform at short notice. It also lacked customer support, user campaigns, and tiered fee structures, making it feel more like a professional trading tool than a full-service exchange.
Meanwhile, perpetual contracts gradually became commoditized. Once other platforms could offer the same product with lower fees and better services, liquidity began to migrate. Trading markets have strong network effects: the more users a platform attracts, the deeper its liquidity becomes, which in turn attracts even more users.
Mao Di: Was slow product development also a factor?
Kuan: Yes. Even after the industry shifted toward USDT-margined contracts, BitMEX continued relying heavily on BTC-margined inverse contracts. Many retail traders did not already hold Bitcoin, so they had to acquire BTC and transfer it to the platform before they could trade. The Bitcoin network’s relatively high costs and slow settlement times also weakened the user experience.
Inverse contracts made sense in the early years. At the time, USDT’s credibility and supporting infrastructure were still immature, while using US dollars or dollar-equivalent assets as collateral could have created more direct regulatory exposure. BitMEX was capable of designing linear contracts, but as an early mover, it had to operate within the constraints of that period.
Once stablecoins matured and market preferences changed, however, continuing to rely on inverse contracts became a burden. BitMEX failed to complete the transition in time, allowing newer rivals to gradually erode and eventually overtake its product advantages.
How Bybit Absorbed the “BitMEX Refugees”
Mao Di: You later moved to Bybit. How did it replicate and ultimately surpass BitMEX?
Kuan: At the time, many users affected by BitMEX’s regional restrictions referred to themselves as “BitMEX refugees.” Bybit entered the market at precisely the right moment. Its early products and API closely resembled those of BitMEX, which kept migration costs low for professional traders.
Bybit had fewer users at the time, which also meant that its systems were less likely to become congested during extreme market conditions. Its liquidity was relatively strong and, at one point, noticeably better than that of several other major platforms.
The team also had experience operating foreign-exchange platforms, so it placed greater emphasis on affiliates, customer service, and community management. Fee rates could also be adjusted according to individual user profiles.
More importantly, Bybit iterated more quickly. In its early days, it even copied BitMEX’s scheduled withdrawal mechanism, but it changed the system soon after recognizing the problems it created for users. It later introduced USDT-margined contracts, spot trading, earn products, and various user-acquisition and promotional campaigns, gradually transforming from a derivatives-only platform into a full-service exchange.
Eventually, most exchanges moved toward a “super-app” model, combining spot trading, derivatives, earn products, and other services on a single platform. BitMEX maintained its position as a specialized professional tool, while newer platforms attracted its users with broader products and stronger operations.
Why BitMEX Found No Buyers
Mao Di: BitMEX said it had explored a sale but was unable to find a buyer. Why do you think no deal was reached?
Kuan: When acquiring an exchange, buyers generally consider its users, liquidity, licenses, and technological moats. BitMEX had already lost a substantial share of its users and trading volume, while perpetual contracts had long since been replicated across the industry. Its original competitive moat had largely disappeared.
The platform still had brand recognition and historical significance, but crypto traders tend to have limited loyalty to individual platforms. When another exchange offers lower fees, higher returns, and a comparable level of trust, capital can move very quickly.
BitMEX’s founding team had also stepped away from daily operations, while the platform continued to carry historical regulatory risks and other liabilities. A potential buyer would have found it difficult to determine how many users and how much revenue could be retained after an acquisition.
The failure to reach a deal may also have reflected a difference in valuation. The sellers may have placed greater value on BitMEX’s historical importance, while potential buyers focused on future cash flow. That gap would have made it difficult for the two sides to agree on a price.
How Should BitMEX’s Historical Role Be Evaluated?
Mao Di: Overall, your assessment of BitMEX appears relatively positive. Were you surprised by its closure?
Kuan: As a financial engineering practitioner, I give BitMEX considerable credit. It delivered meaningful product innovation and bore the costs of educating the early market and developing new mechanisms. Much of the infrastructure used by the industry today was built on the path it helped establish.
Perpetual contracts themselves are neutral tools. High leverage certainly increases liquidation risk, and the use of 100x leverage to attract users is something exchanges should reflect on. However, even without perpetual contracts, leveraged spot trading and fixed-expiry futures can also result in substantial losses.
The timing of BitMEX’s closure was somewhat surprising to me, but its long-term decline was not. Once exchanges entered the “super-app” race, it became difficult for smaller platforms to regain relevance through a single product innovation, particularly when successful features could be quickly replicated by larger competitors.
BitMEX had already lost users, liquidity, and differentiation, leaving it with few obvious avenues for renewed growth.
Even so, the period from 2018 to 2020 can still be described as the “BitMEX Era.” Its influence on the structure of crypto trading and on many industry participants should not be overlooked simply because the platform later declined.
The End of the Golden Era for Offshore Exchanges
Mao Di: How will derivatives exchanges develop in the future? Have offshore exchanges already reached their ceiling?
Kuan: The crypto market was once particularly well suited to financial innovation. In traditional finance, launching a new derivatives product requires navigating complex compliance procedures. After the 2008 financial crisis, regulators also became much more cautious about innovations in financial engineering.
The crypto market previously operated under fewer restrictions. As long as a product functioned and attracted users, it could be launched quickly.
Crypto assets also trade continuously, 24 hours a day, seven days a week. They are therefore less exposed to the large opening gaps caused by weekend or holiday market closures, making them particularly suitable for derivatives trading.
The regulatory environment has now changed. Major exchanges increasingly prioritize obtaining licenses in different jurisdictions, and greater regulatory compliance has become an industry-wide trend. The era in which offshore exchanges could thrive on regulatory arbitrage is coming to an end.
The industry will become more compliant and move away from the largely unconstrained “Wild West” environment of its early years.
This will reduce certain risks, but it will also require new products to develop under tighter constraints. Innovation will continue, but companies will no longer be able to experiment as freely as they did in the industry’s early years.
Can BitMEX’s Innovation Be Compared With Uniswap?
Mao Di: What place should BitMEX occupy in the history of the crypto industry?
Kuan: BitMEX represents a rare example of product-level innovation. Other exchanges introduced platform tokens, IEOs, trading-fee discounts, and blockchain ecosystems, but these were primarily innovations in operations or business models.
BitMEX, by contrast, transformed a complex derivatives concept into foundational market infrastructure adopted at scale.
In my view, this level of innovation can be compared with Uniswap. Both changed the foundational structure of the industry, although they did so in different ways. BitMEX’s subsequent loss of market share does not erase the contribution it made at the time.
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BNY, which has over $59 trillion in assets under custody and administration, plans to launch a digital transfer agency that records fund transactions and ownership on-chain while retaining its traditional system. The business currently services about $8.6 trillion across 7.6 million accounts, with Baillie Gifford, BlackRock and BNY’s Dreyfus expected to be among the first users.

HashKey said its wholly owned subsidiary, HKDAG (Singapore), has signed a non-binding framework agreement with Asia Pacific Exchange (APEX) and its major shareholders to acquire all shares in APEX. APEX holds an Approved Exchange license from the Monetary Authority of Singapore, while its subsidiary Asia Pacific Clear holds an Approved Clearing House license. The deal remains subject to definitive agreements and MAS approval.

Hungary’s parliament has voted to repeal mandatory third-party validation for certain crypto conversions, removing requirements to verify asset origins, wallet ownership and customer information before transactions. Separately, the National Bank of Hungary granted CoinCash operator Tiwala Solutions the country’s first MiCA authorization on July 20, covering custody, crypto-to-fiat and crypto-to-crypto exchange, transfers, investment advice and portfolio management.

According to Reuters, Russia’s Federal Security Service (FSB) has formally accused Telegram founder Pavel Durov of aiding terrorist activities and issued an international arrest warrant for him. The FSB said the charges stem from Telegram’s failure to remove content allegedly used by Ukrainian special services as well as terrorist and extremist organizations to prepare and coordinate sabotage, terrorist activities, and cyber fraud in Russia.
Neither Durov nor Telegram had immediately commented on the allegations. Previously, in August 2024, Durov was arrested in France and faced 12 charges, mainly related to insufficient content moderation on Telegram that allegedly enabled issues including child sexual exploitation and drug trafficking. He was later released but remained under judicial supervision and was restricted from leaving France.

According to SoSoValue data, spot Bitcoin ETFs recorded $49.7544 million in net outflows on July 28 (ET), marking the fourth consecutive day of net outflows. Spot Ethereum ETFs saw $14.53 million in net inflows. In addition, Morgan Stanley Ethereum Trust (MSSE) officially began trading on NYSE Arca.

Arthur Hayes: Why Bitcoin is not going up? (ARCHIVE FOOTAGE)
On June 26, 2026, Arthur Hayes stated in an interview with Bonnie Blockchain that Bitcoin has failed to rally despite money printing because AI capital expenditures have absorbed the market's marginal capital. He believes investors are chasing AI tech stocks and supply chains, while newly wealthy individuals from the AI boom prioritize buying hard assets or diversifying into NASDAQ stocks rather than investing in the crypto market.
Furthermore, Arthur Hayes believed that if AI stocks crash, cryptocurrencies will initially plunge in tandem. Due to their 24/7 liquidity, investors will be forced to sell crypto to generate cash during margin calls before the market eventually stabilizes and sorts out the relative winners.

ARK Invest researcher Lorenzo Valente said the crypto industry is undergoing a deeper consolidation than previous bear markets, with capital allocation becoming increasingly concentrated as teams and exchanges lacking product-market fit exit the market. Revenue concentration remains high across multiple sectors, including applications, infrastructure, and L1s.
Hyperliquid and PumpFun account for 67% of total application revenue, while the top three projects, including Ethena, account for nearly 80%. Valente expects industry M&A activity, bankruptcy filings, project shutdowns, and talent acquisitions to increase further in the coming months.

Strategy founder Michael Saylor said Bitcoin’s biggest threat comes from internal factions rewriting consensus rules and seizing economic rights. He compared Bitcoin’s consensus rules to a constitution and opposed proposals including BIP-110, additional covenant machinery, and larger blocks, arguing they could weaken transaction freedom, blockspace scarcity, and network security while increasing validation costs and attack surfaces.
Saylor said as the block subsidy halves every 210,000 blocks, miners will rely more on fees to secure Bitcoin, and weakening the fee market could threaten long-term security. He called for keeping Bitcoin’s base layer simple, neutral, scarce, and secure, with innovation built at the edges, and protocol changes made only when necessary and conservatively.

Trade xyz announced that the mark price of SKHYNIX dropped from $1,127.9 to $917.25 at 23:01 UTC on July 27, based on executed trades relayed by multiple independent data providers tracking the primary Korean pre-market venue. Although the oracle system performed as designed, the drop triggered user liquidations. Consequently, Trade xyz has made a one-time discretionary decision to cover the liquidation losses attributable to this anomaly, with eligibility requirements and distributions to be announced in the coming days. Furthermore, the platform stated it will improve pricing systems to handle tail events.

Data from @Adam_Tehc shows that Robinhood Chain launchpads generated $1.23 billion in trading volume over the past week, surpassing PumpSwap’s roughly $1.22 billion. Meme trading on Robinhood Chain did not appear to take volume away from PumpFun, but instead added to overall market activity.

On-chain security platform Blockaid reported that crypto losses from security incidents exceeded $1 billion in the first half of 2026, across 212 incidents, the highest number recorded in any six-month period. Ethereum- and Solana-related projects suffered approximately $332 million and $326 million in losses, respectively, while the $292 million KelpDAO exploit was the largest single incident.
Ethereum losses were mainly caused by code vulnerabilities, whereas more than 98% of Solana losses stemmed from compromised key and signing infrastructure, primarily involving Drift Protocol and Step Finance. Blockaid linked the incidents to North Korea-associated hacking groups.

Many “market maker allocations” in tokenomics are structured as token loans combined with call options rather than direct sales. Projects provide tokens to market makers before TGE, but key terms such as loan amounts, strike prices, and repayment conditions are often undisclosed, making it difficult for retail investors to assess actual circulating supply and potential selling pressure.
Bringing MM loan information on-chain could reduce information asymmetry in the altcoin market. Alongside the development of perpetual contracts and on-chain shorting tools, greater transparency around market maker agreements could improve price discovery, increase accountability, and reshape market incentives.

According to CryptoQuant, open interest in traditional finance perpetual futures on crypto exchanges has more than doubled since May, surpassing $2 billion. Binance ranks first with roughly 35% of exchange open interest in both crypto and TradFi perpetual markets. The growth suggests crypto exchanges are increasingly becoming key venues for onchain, round-the-clock trading of traditional financial assets.

According to Bloomberg, bettors on prediction-market platform Kalshi have lost about $294 million through parlay wagers. Retail users tend to favor low-probability, high-payout combinations in which a single incorrect outcome causes the entire bet to lose, while sophisticated traders profit by taking the other side. One popular World Cup final parlay cited in the report had an implied probability of just 2.7% at kickoff. The publicly available portion of the article did not specify the period covered by the loss figure.

According to CryptoRank, a crypto market data platform, 150 unique venture capital firms had participated in crypto funding rounds in July 2026 as of July 28, marking the lowest monthly figure since November 2020. This is far below the peak of 1,177 active investors recorded in May 2022. CryptoRank said the decline suggests crypto venture investment is becoming increasingly concentrated among a smaller group of funds, while investors are growing more selective when choosing projects.

If you have ever wondered, as I have, what “a 5% allocation to market makers” in tokenomics actually means, this article may be worth reading. Is that 5% loaned or sold? What is the strike price? Must the tokens be returned at maturity, or can the option be exercised? The answers to these three questions can determine an altcoin’s price trajectory for an entire year, yet retail investors almost never get to see them.
Introduction
In the spring of 2025, just a few months after Movement Labs launched the MOVE token, something happened that was both familiar and unusual in crypto.
It was familiar because the story followed the standard altcoin playbook: the TGE marked the price peak, the market maker was accused of sustained selling, the project publicly denied the allegations, and the price delivered the clearest possible verdict.
What made it unusual was that the market-making agreement itself came to light. Chat logs, the term sheet, the market maker’s holdings, the strike price, and the number of tokens loaned were gradually made public through Twitter, investigative reports, and community discussions. For the first time, the industry was able to see, through one specific project, how the standard MM loan structure, a “token loan + call option” agreement, could turn what was supposed to be a liquidity service into a cost-free channel for market-maker selling after listing day.
In hindsight, MOVE was not an exception but the norm. The only difference was that someone leaked the agreement. The persistent selling pressure often associated with altcoins, even outside scheduled unlocks, is largely rooted in this same type of arrangement. Most of the time, however, these agreements remain buried in PDF files, encrypted Signal groups, and informal understandings known only to the project and its market maker.
If the evolution of crypto markets over the past decade can be reduced to one central theme, it is the gradual transfer of capabilities once controlled by a small group, including leverage, short selling, and information, to retail investors through on-chain protocols. Perpetual contracts broke the asymmetry in access to leverage. Protocols such as Shortit are now breaking the asymmetry in access to short selling. Bringing the details of MM loans on-chain would dismantle the final barrier: information asymmetry in the primary market.
Once these three forces converge, the altcoin market will, for the first time, have a price discovery structure comparable to that of traditional capital markets.
This article examines these three waves of democratization: how each emerged, why they are now converging, and what the altcoin market may look like once they do.
The Three Asymmetries in Altcoin Price Discovery
An altcoin is not a stock. That may sound obvious, but nearly every structural problem in the altcoin market stems from a fact that is widely assumed yet rarely stated: it has the appearance of a financial market, but almost none of its underlying framework.
A U.S. stock undergoing an IPO must pass through SEC review, underwriter pricing, a roadshow, a lock-up period, post-listing market-making rules, and disclosure requirements for insider sales. Every stage is governed by public and enforceable rules. Retail investors may not have a seat at the same table as Goldman Sachs, but they at least know the shape of the table: the size of the float, when insiders are allowed to sell, who the market makers are, and whether restrictions on naked short selling apply.
Altcoins are different. From launch to secondary-market trading, almost none of the variables that matter most are subject to mandatory disclosure. The actual effective circulating supply, the identities and holdings of market makers, option strike prices, and unlock schedules, all variables that directly shape price expectations, are usually hidden from retail investors.
This structural opacity has long produced three layers of asymmetry in the altcoin market.
The first is leverage asymmetry. In the early crypto market, particularly before 2017, spot trading was virtually the only option available. Even when a retail investor’s view was correct, they could only express it through an unleveraged spot position. Projects, venture capital firms, and market makers, by contrast, could amplify the same directional bet many times over through OTC lending, derivatives desks, and the deployment of proprietary capital. As a result, even when two participants in the public market had access to the same information, their ability to act on it was fundamentally unequal.
The second is directional asymmetry. Before perpetual contracts, crypto was essentially a long-only market. Short positions in BTC and ETH could just about be constructed through spot borrowing, but altcoins were almost impossible to short. This created a peculiar equilibrium: the marginal incentive of nearly every market participant pointed in the same direction, namely to push the token price higher first and deal with everything else later. Because only price appreciation could generate returns, narratives, KOLs, media coverage, and marketing budgets were all incentivized to pull in the same direction. A significant part of the altcoin market’s long-standing dependence on narratives stems from the fact that it was structurally a one-way market.
The third is information asymmetry. Even after retail investors gained access to leverage and short-selling tools, they still did not know at what price or when to act. They did not know the actual effective circulating supply, how many tokens had been loaned to market makers, the strike prices of the options, or the economically rational choices available to market makers at different price levels. Projects knew, VCs knew, and market makers knew. Retail investors alone were kept in the dark.
Together, these three asymmetries created the most persistent power structure in the altcoin market over the past decade: projects, early-stage VCs, and market makers controlled both the information and the tools. They could reposition before each round of tokens was passed on to retail investors, ultimately transferring price risk to participants who lacked equal access to either. This is a problem embedded in the design of the altcoin market, not a moral failing unique to any one project.
What follows is also one of the most important structural shifts in crypto over the past decade: how each of these three asymmetries began to break down.
Perpetual Contracts: Democratizing Leverage
In 2016, BitMEX launched what seemed at the time like a strange product in the Seychelles: the perpetual contract, a derivative with no expiration date that uses funding rates to track the spot price.
There is no exact equivalent to this invention in traditional finance. Traditional futures always have expiration dates, and those dates are what determine their hedging and arbitrage structures. BitMEX removed the expiration date and introduced funding rates as the cost of holding a position. In engineering terms, this standardized an indefinite leveraged position and made it liquidatable and custodial.
Before that, crypto retail traders who wanted leverage could only use “margin spot trading” on a CEX. In practice, this meant borrowing money from the exchange to buy tokens, with a cumbersome process, opaque costs, and a primitive liquidation mechanism. Institutions operated in an entirely different way, using proprietary trading books, OTC lending, and cross-exchange arbitrage. Leverage was already a standard part of their toolkit.
Leverage had existed for a long time. What perpetual contracts truly changed was its accessibility. BitMEX offered leverage of up to 100x, allowing anyone with USDT to open a position. After Binance entered the market in 2019, it brought this mechanism to retail traders worldwide. The trading interface was reduced to two simple buttons, long and short, margin ratios were calculated automatically, and the liquidation queue was visible to everyone.
The 2021 bull market provided the final validation of this transformation: daily perpetual contract volume surpassed spot trading volume. The primary venue for price discovery in crypto shifted from the spot market to perpetual contracts.
This transformation is often described as “retail traders being harvested by perpetual leverage.” That assessment is only half right. Perpetual contracts did cause large numbers of retail traders to be liquidated while using high leverage, but they also gave retail traders, for the first time, a tool that allowed them to make leveraged bets on equal terms with institutions. Before perpetual contracts, even if a retail trader correctly predicted the direction of the market, the maximum size of the position was capped by the amount of capital available for spot trading. After perpetual contracts, the trader’s ability to take a position was limited only by personal risk tolerance and margin management.
More frequent liquidations are the price of democratizing leverage. This is an inherent feature of the tool, not necessarily a flaw. A market that allows retail traders and institutions to bet at the same table must subject everyone to the same risk structure.
But perpetual contracts solved only the leverage asymmetry. Even with access to 100x leverage, a retail trader who expected an altcoin to decline would probably find that there was still no suitable instrument. Most altcoins had no perpetual contracts. Even when they did, liquidity was often so thin that funding costs would consume the returns. Perpetual contracts solved the leverage and directional asymmetries for major cryptocurrencies, but left two layers unresolved: directional asymmetry for altcoins and information asymmetry across all tokens.
These are the problems that the next decade must solve.
The Right to Short: Democratizing Directional Exposure
If you believed in 2023 that a particular altcoin was going to fall, perhaps an L1 that peaked at launch, a GameFi token whose valuation had become detached from fundamentals, or an AI agent token whose narrative had run its course, you would have encountered an awkward reality: there was almost no way to short it.
Perpetual contracts on CEXs covered only a small number of major cryptocurrencies. Most altcoins outside the top 50 by market capitalization either had no derivatives or had only one extremely illiquid contract. The order book might be so thin that a trade worth tens of thousands of dollars could move the price by 5%. The funding rate could remain persistently positive for short positions, meaning that traders had to pay a “short tax” every eight hours, while the liquidation threshold was highly unfavorable to position holders. As a result, even if the market call was correct, liquidity constraints eroded the trader’s ability to act on it, making the short mathematically unattractive.
Shorting through spot borrowing was virtually nonexistent for altcoins. No CEX was willing to maintain lending markets for long-tail tokens because liquidity was insufficient and the risks to lenders were too high.
This created a long-standing structural problem in the altcoin market: it was a long-only market.
A long-only market produces a specific set of equilibrium effects. The marginal incentives of all market participants point in the same direction. Projects want prices to rise. VCs want prices to rise. MMs want prices to rise, at least before exercising their options. KOLs want prices to rise. The media wants prices to rise. Retail traders in the secondary market want prices to rise. When everyone in a market can profit only when prices increase, narratives, traffic, marketing, and community operations all become focused on one question: how can the price be pushed a little higher? This is a problem with the incentive structure and does not need to be framed as a moral issue.
The deeper consequence is that when no one can bet on the downside, negative information can never be priced into the market. An efficient market requires pessimists and optimists to bet against each other at the same price before that price can approximate fair value. For most of the past decade, only optimists could place bets in the altcoin market. The only option available to pessimists was not to buy, and not buying leaves no signal in the price.
This is the problem that on-chain shorting protocols such as @youcanshortit seek to solve: allowing any retail trader to short any token at any time at a transparently priced cost. The core mechanism can be simplified as follows. The protocol maintains a lending pool that allows any token holder to lend tokens to short sellers. The short seller pays a transparent interest rate determined by supply and demand in the pool, rather than by a CEX black box. The stablecoins received from selling the borrowed tokens remain in the protocol as collateral. If the token price rises, the position is liquidated. If it falls, the short seller profits.
In traditional finance, this mechanism is known as securities lending, a specialized market open only to institutions. In crypto, it must operate on-chain and be accessible to retail traders because no CEX is willing to provide this service for long-tail tokens. It simply does not make economic sense for them to do so.
The value of democratizing the right to short is easy to misunderstand. Most people assume that it simply allows retail traders to bet on falling prices and profit from crashes. That is only a small part of the picture. Short selling has always been mathematically difficult and characterized by asymmetric risk, so most retail traders may still fail to profit even when the tools are available. What it really changes is something deeper. Once a token can be shorted, excessively optimistic narratives can be tested by short sellers, while excessively pessimistic narratives can be tested by short covering. The altcoin market begins to take the form of a two-sided debate.
But even with tools for taking positions in both directions, retail traders still face a fundamental problem: they do not know at what price or when to short. The most important variables determining an altcoin’s short- and medium-term supply, namely MM holdings and option strike prices, remain invisible to them.
This is the third asymmetry, and the true last mile.
Bringing MM Loan Information On-Chain: Democratizing Information
A. The Standard Structure of an MM Loan
To understand why MM loans sit at the heart of information asymmetry in altcoins, it is first necessary to examine their standard structure. Even retail traders who have spent years in crypto may have heard the term “market maker” without ever seeing what a real MM agreement looks like.
Agreements between altcoin projects and market makers almost always follow the same template: Loan + Call Option.
Shortly before the TGE, the project provides the MM with a quantity of tokens, usually equivalent to 1% to 5% of the circulating supply, in the form of a “loan.” The word “loan” is important from an accounting perspective. The project has not “sold” the tokens, so it does not need to disclose any proceeds from a sale. In the tokenomics documentation, these tokens remain classified as a “market maker allocation” or “liquidity reserve.” The agreement usually runs for 12 to 24 months. At maturity, the MM has two choices: return the same number of tokens or purchase them at a predetermined strike price. In financial terms, this choice to buy or not to buy is a European call option. The strike price is typically set at a premium of 25% to 100% above the TGE price.
The agreement may also include profit-sharing arrangements, guaranteed minimum provisions, and market-making obligations, but Loan + Call Option is the underlying framework.
This structure is highly attractive to both parties. The project receives immediate secondary-market liquidity without selling tokens directly. There is no sale for accounting purposes, and the tokenomics narrative remains clean. The MM is in an even more favorable position. It receives a large inventory at no upfront cost, gains upside optionality, and bears almost no downside risk. If the price falls below the TGE price, the MM can simply return the tokens without recognizing an impairment loss. The incentives are asymmetric. The project bears the opportunity cost, since if the token price rises and the MM exercises the option, the project loses the opportunity to sell those tokens at a higher price. The MM captures all the upside while bearing almost none of the downside. This is why market making has become one of the most profitable businesses in crypto over the past several years, even though almost no retail traders understand how the business is actually structured.
B. How This Structure Systematically Drives Dumps
Once the agreement structure is understood, it becomes clear why many altcoins face a constant stream of selling pressure even outside token unlocks. The key is to examine the MM’s rational choices across different price ranges.
When the price is far below the strike, the probability of the MM exercising the option is close to zero. It would not buy a token at a $2 strike price when the market price has already fallen to $0.50. In this scenario, the loaned tokens have no long-term ownership value to the MM because they must eventually be returned. The rational choice is to sell them before repayment, buy them back at a lower price, and lock in the spread. Every cycle of “selling high and buying low” allows the MM to generate profits using tokens loaned by the project. Any portion not subject to profit sharing becomes pure profit for the MM.
As the price approaches the strike, the incentives become more complicated. If the price rises above the strike, the MM will need to purchase the loaned tokens at the strike price when the agreement expires. The price increase benefits the MM, but exercising the option still comes at a cost. The rational approach is to sell in advance as a hedge, partially offsetting the potential exercise obligation. From the market’s perspective, this creates an invisible supply wall near the strike, which in turn suppresses attempts to break above that level.
Together, these two mechanisms produce one of the most common yet difficult-to-explain phenomena in the altcoin market: persistent and seemingly irregular selling pressure outside token unlocks. Retail traders see the price falling but cannot identify any unlock event that would explain it. This is because the selling pressure does not come from the project or its VCs. It comes from the MM holding tokens “loaned” by the project. In tokenomics documents, those tokens are classified as a “liquidity reserve.” In trading terms, however, they are effectively already in circulation and generating continuous selling pressure.
This is the structural basis of what is often called a “controlled market.” When a token’s price appears to be precisely contained within a certain range, repeatedly hits a ceiling whenever it rises, and always finds buyers when it falls, there is likely an option-induced market-maker behavior model operating behind the scenes. Retail traders simply cannot see its parameters.
C. What Information Should Be Disclosed On-Chain?
If MM loans are recognized as the most important black-box variable in the altcoin market, the next question is what information should be disclosed.
Not every detail needs to be made public. An MM’s quoting algorithms and risk management parameters are part of its alpha, and putting them on-chain would undermine its business model. What should be disclosed is the minimum set of information that directly affects retail traders’ price expectations without revealing the MM’s proprietary algorithms: the number of tokens loaned and the relevant wallet addresses, the contract term, the strike price, the unlock and repayment schedules, the profit-sharing mechanism, and any guaranteed minimum and default provisions.
Together, these six fields provide retail traders with enough information to use standard financial analysis to infer the MM’s rational responses across different price ranges, turning the current black box into a supply curve that can be modeled. The MM’s specific trading behavior, which constitutes its alpha, does not need to be disclosed. What should be disclosed are the incentive parameters behind that behavior.
The technical implementation would not be complicated. A standardized schema, a contract that requires every token loan to be recorded in an on-chain registry, and an indexing service that analysts can query could all be built on the EVM with just a few hundred lines of code. The real challenge has never been the technology, but the incentives: how to persuade projects and MMs to disclose this information on-chain. That is the question addressed in the next section.
D. What Happens to the Altcoin Ecosystem After Disclosure?
If this disclosure becomes a reality, several immediate changes will occur in the altcoin market.
The structure of selling pressure will become readable. For the first time, the “circulating supply” reported in tokenomics documents will be separated from the number of tokens loaned to MMs. Retail traders will be able to calculate directly:
Reported circulating supply + Tokens loaned to MMs = Actual supply available for sale
Once the strike price is public, price movements near the strike will be priced in by the market in advance. The strike will become a new key level in altcoin technical analysis, similar to the “institutional cost basis” in the stock market, but more precise because it is written into the contract. Combined with shorting tools such as Shortit, retail traders will, for the first time, be able to construct symmetrical positions around the strike.
Accountability will become enforceable. Today, when a token falls sharply, the project can claim that it was “market behavior,” while the MM can claim that it was “passive hedging.” After disclosure, every outflow from an MM wallet will correspond to a public contract, and any dump can be attributed to a specific project-MM pair. For the first time, reputational costs will enter the MM’s decision-making function. Projects will also no longer be able to say both “there is no selling pressure from the team” and “we are working with a top-tier market maker.” After disclosure, they will have to choose one or the other.
The most important second-order effect will be a “transparency premium.” Once some projects begin disclosing voluntarily, those that do not disclose will be assumed to represent the worst-case scenario, somewhat like Proof of Reserves. Retail traders will assume that these projects have loaned out large quantities of tokens, set low strike prices, and offered generous guarantees, and will discount their valuations accordingly. Disclosure will therefore shift from being a cost to being a signal, and from a self-imposed constraint to a tool for obtaining a valuation premium. This is the endogenous incentive that allows any disclosure regime to become sustainable. It is driven not by compliance pressure, but by market pricing pressure.
Of course, everything described above is an ideal scenario. In practice, implementation would be extremely difficult.
The Altcoin Market After the Three Forces Converge
Leverage, direction, and information. The three asymmetries discussed in the previous sections have been addressed by three different types of protocols over the past decade. When these three waves of democratization are considered together, a new market structure begins to emerge.
The democratization of leverage allows retail traders to amplify their bets when they correctly identify the market’s direction. The democratization of short selling allows them to take positions when they expect prices to fall. The democratization of information allows them, for the first time, to know at what price and at what time they should place those bets. Only when all three come together do retail traders finally have a complete set of tools for competing with institutions at the same table.
Once all three tools are in place, the price discovery mechanism itself also begins to change.
Altcoin price discovery has long been dominated by two factors: narratives, meaning whose story can attract the most attention, and liquidity, meaning who can deploy the most capital to push the price to a particular level. Before these three waves of democratization, both were consistently controlled through coordination among projects, VCs, and MMs. Retail traders were always the recipients of narratives and the providers of liquidity. The former determined what they bought, while the latter determined when others would unload on them.
Once these three asymmetries are broken, the central drivers of price discovery shift from “narratives + liquidity” to “information + expectations.” Retail traders no longer see only KOL calls and candlestick charts. They also have access to readable MM contract disclosures, a transparent short-lending pool, and a set of option strikes that can be modeled. Narratives will continue to exist, but they will no longer be able to drive prices in isolation. Information will immediately price out the excesses created by those narratives.
It is important to note that this will not eliminate the scope for coordination between projects and MMs. Sophisticated players will continue to find new strategies, such as splitting option structures across off-chain sub-agreements, dispersing strike prices through multi-leg derivatives, or replacing direct token loans with DAO governance tokens. Every evolution in disclosure rules creates new methods of circumvention. This is normal in any financial market.
However, the marginal cost of such coordination will rise significantly. Today, the marginal cost for a project and an MM to design a contract that disadvantages retail traders is close to zero because no one can see it. After disclosure, the market will identify and price in any excessively aggressive terms. Contract design itself will become a public game. Collusion will not disappear, but its returns will decline substantially.
A more important second-order effect is that the composition of market participants will be reshuffled.
MOVE, discussed in the introduction, is one specific example. However, similar projects have represented much of the new supply in the altcoin market over the past three years. Their core business model is “low float + high FDV + aggressive market making + a narrative-driven rally.” Under a disclosure regime, they would immediately be repriced according to their actual supply curves, eliminating the economic foundation for their existence. The exit of these tokens would significantly lower the overall valuation baseline of the altcoin market.
Projects with genuine demand that are willing to disclose proactively and adopt on-chain market making would receive a valuation premium, a more stable base of retail holders, and a longer market life cycle. Very few such projects exist today, but a disclosure regime would create positive feedback for them in the secondary market, causing their numbers to grow exponentially.
A new type of participant would also emerge: on-chain MM protocols themselves. Once all key parameters of a market-making arrangement must be recorded on-chain, the MM role will become partially protocolized. Fully smart contract-driven “algorithmic MMs” will emerge. Projects will configure parameters according to a public schema, while contracts automatically execute market-making and token repayment, removing the intermediary layer represented by firms such as GSR and Wintermute. The MM business will shift from “relationship-driven + information asymmetry” to “protocol-driven + standardized,” ultimately reshaping the industrial structure of the altcoin market-making industry.
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