What sets apart the various on-chain platforms? Let’s dive into a rapid rundown of their mechanism designs.
AEVO
AEVO lets people trade pre-tokens as perpetual futures. Traders can go both long and short directly against the token for both speculative and risk management purposes
The market price at AEVO is defined as the time-weighted average price (TWAP), with no index price involved. By using a TWAP, AEVO aims to protect traders from potential manipulations by whales. The specifics of this TWAP mechanism, however, remain undisclosed.
All trades, whether long or short, are collateralised using USDC. AEVO allows maximum leverage of 2x, and traders must maintain a minimum collateralisation of 48% to avoid liquidation. There are no funding rates.
Once the TGE occurs, pre-token markets transition to standard markets. The maximum position one can hold is capped at USD 50,000. Additionally, AEVO imposes no restrictions on the amount of total open interest for any particular market.
Front Run
A market will be settled after its TGE. During the settlement period, sellers must close active trades to trigger the smart contract and the token settlement.
Buyers lock a specified amount of collateral when entering the trade until the TGE, which is then used to purchase the tokens or points from the seller.
Sellers have a 24-hour grace period post-TGE to deliver the points or tokens. If they don’t, the collateral they used when entering the trade is seized.
If the conversion from points to tokens does not occur at the pre-agreed ratio, the agreement is voided and the collateral is refunded to both parties.
Hyperliquid
Hyperliquid enables traders to engage with pre-tokens, known as Hyperperps, as perpetual futures. At TGE, these markets evolve from pre-token to real-market status.
Similar to AEVO, Hyperliquid operates independently of an oracle or index price. It relies on an 8-hour exponentially weighted moving average, derived from the previous day’s minutely mark prices.
The platform distinguishes itself from AEVO by integrating funding rates based on momentum. It allows traders to use up to 3x leverage on Hyperperps. The required maintenance margin is 16.67%, which is half the initial margin at maximum leverage.
While there is no maximum open interest per individual, the markets have a maximum open interest cap of $1,000,000. This is done as a risk management tool given the volatile and illiquid nature of the pre-token markets.
Whales Market
Both for tokens and points, the seller’s collateral ensures they will provide tokens once they’re released. If the seller wants to sell 100 points for $1 per point, they need to provide $100 worth of collateral.
At TGE the seller is to provide the tokens/points sold to get their collateral back. If the sellers do not settle before the deadline, their collateral goes to the buyer as compensation. Through this mechanism, Whales Market (fully or partially) collateralises the trade and mitigates the delivery risk.
However, this risk is only mitigated up to a certain point. Let’s consider a couple of non-exclusive scenarios. The seller sells 100 points at $1 per point.
- A–At TGE, if one point is worth approximately $2, the seller could take a $100 loss from the collateral and still profit $100. The buyer would receive $100, which would at best, partially (50%) cover their buying order.
- B–The buyer/seller is collateralising at current prices. Let’s say they add 0.25 ETH at $4,000 per ETH to settle the trade. If the value of the collateral drops at TGE, this could leave the counterparty with a depreciated asset.
Comparison
The table below provides a quick summary of the key mechanisms that pre-token projects have.