What Are Crypto Pre-Markets and How Do They Enable Trading Pre-Launch Tokens?
Crypto pre-markets allow users to trade tokens that haven't been issued or distributed, where sellers deposit collateral and buyers deposit funds with an agreement to settle the order when the token generation event is completed.
Key Takeaways
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Pre-market platforms allow users to trade tokens that are yet to be issued or launched on trading platforms. Trades are made as a pledge between the buyer and seller to satisfy the order when the token generation event is concluded.
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Decentralized pre-markets use smart contract technology to develop a P2P trading platform and enact regulations that are expected to compel the transacting parties to satisfy their parts of the pledge within a set time frame.
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Whales Market is an example of a decentralized pre-market platform. It allows OTC trades and protocol points trades in addition to trading tokens pre-launch. Some centralized exchanges have also launched pre-market platforms.
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This article discusses pre-markets and how they enable users to trade pre-launch crypto assets.
In most token generation events and airdrops, community members already know the amount of tokens they will receive when the claiming process begins. However, trading of these tokens is impossible until the token generation event is complete. Users can attempt to trade these allocations through peer-to-peer (P2P) trading, but there are risks involved.
But what if there was a safer way to trade token allocations and points (which are likely to translate into future airdrops)?
Enter pre-market trading platforms, which offer users a safer pre-launch trading experience.
Understanding Pre-Markets in Crypto
In the traditional financial sector, pre-markets are trading sessions conducted before the market opens for the day. However, unlike the mainstream market, cryptocurrency trading never stops.
Pre-markets in crypto refers to the trading of tokens that are yet to be launched or distributed to allocated wallets. It provides investors with an opportunity to bet on the market performance of the token, letting users trade the token during the speculative period between the allocation announcement, token distribution, and official listing on a trading platform.
Pre-markets aren’t limited to tokens; they can also be used to trade protocol points, which could potentially become an airdrop criteria in the future.
Do note that pre-market trading is highly speculative, and always do your own research before investing in any project.
Why Are Pre-Market Platforms Growing in Popularity?
The key purpose of a pre-market platform is to deliver a trustless platform where users can conduct such trades securely. Before such platforms, investors resorted to crude arrangements to trade tokens pre-launch, exposing themselves to security risks and limited availability.
These P2P pre-launch token trading setups are built on trust. Like any trust-based system, this process has its risks and could lead to significant losses when any of the parties fail to satisfy their part of the trade. Moreover, traders are only limited to their own social network, as searching for external partners is challenging and brings with it increased risks.
New pre-market trading platforms connect buyers and sellers all over the world, which increases the options available while allowing traders to have a more holistic view of the asset’s valuation. At the same time, with multiple buyers and sellers, it also improves liquidity conditions and enables traders to buy and sell as many tokens or points as they wish.
Apart from benefits to pre-market traders, another important role such platforms play is to offer insight to investors who plan on trading the assets after launch. Just like pre-markets in traditional finance, pre-markets in crypto allow investors to gauge the financial strength of the asset before official trading by using the demand and ‘ready seller’ statistics from the pre-market platform.
How Pre-Markets Work
Pre-markets are structured like regular P2P trading platforms, with the key difference being that pre-markets retain custody of funds from both parties until the conditions are satisfied. In the case of decentralized pre-markets, funds are held by smart contracts, while centralized pre-markets rely on custodians to hold and release funds.
On pre-markets, traders can either create an order or fill an already created order. This could be a buy order or a sell order. To create an order, a trader specifies a price and the amount they wish to sell or buy at the stated price. Once the order is created, they are displayed on the platform.
To create a sell order, the seller might be required to deposit collateral. The seller's collateral is held in custody pending the completion of the order. Failure to complete an order could result in total or partial loss of the collateral. The pre-market platform usually specifies the trade settlement period, where the seller is required to provide the pledged asset before the settlement period elapses and defaulting penalties are applied.
Buyers are required to pay the full value of the token they wish to purchase while filling an existing order or creating their order. The buyer’s funds are held in custody pending the provision of the asset by the seller.
Decentralized pre-markets use smart contracts to manage the safekeeping of sellers’ collateral, buyers’ payments, and the release of assets to both parties when the trade is complete. Meanwhile, on a centralized pre-market platform, this role is fulfilled by the platform operating as a neutral third party that facilitates the trade and ensures the transaction is completed smoothly.
Types of Pre-markets Trading Available
There are different types of assets available for trading on pre-markets; do note that trading these assets is highly speculative and potentially risky.
Pre-TGE Token Trading Market
Pre-TGE (Token Generation Event) trading markets are the most popular pre-markets in the crypto space, where the majority of such events are related to airdrop projects. Traders can participate in active trading of a project’s token before they are distributed or listed on exchanges.
Sellers in a pre-TGE market are usually recipients of the airdrops or investors who secured an allocation in pre-sale projects, while buyers are investors who attempt to take full advantage of the most speculative period in the trading of the token. However, anyone can assume the seller side of the trade as long as they can provide the pledged amount before the settlement time elapses. Pre-TGE trading platforms have seen exponential growth in terms of user count and trading statistics as this idea continues to appeal to cryptocurrency investors.
Point Markets
Point systems are also growing in popularity. Projects award points to users as a measure of their activities on the platforms. While these points don’t have monetary value in themselves like tokens, the issuing project could apply them in different ways, including potentially converting them to tokens as part of their loyalty reward program.
Points markets allow recipients of these points to trade them freely. It provides a marketplace where users can sell their points for supported cryptocurrencies. While the points market features similar architecture to pre-TGE markets, it also involves time-based custody of committed assets pending completion of the trade agreement or the elapsing of the settlement period.
On Whales Market, the buyer will receive the equivalent amount of the protocol’s tokens (upon TGE) based on the total points purchased after settlement.
Now, let’s take a look at Whales Market, a decentralized pre-market platform that allows users to trade pre-TGE tokens, points, and even OTC trading for select tokens.
What Is Whales Market?
Whales Market is a multi-chain OTC and a pre-market platform deployed first on the Solana network. The platform has since then expanded to Base, Arbitrum, Ethereum, and a few other networks.
According to data from Dune Analytics, over 20,000 investors have interacted with the platform on Solana since its launch in January 2024 and it has a total volume escrowed of over $48.7 million.
Whales Market utilizes a smart contract protocol that handles pre-market orders and OTC trades. According to the platform, the goal is to offer the most secure way to conduct P2P trades for pre-launch tokens, points, and regular OTC swaps, as the smart contract removes the need for a third party or a centralized admin/custodian.
Unlike centralized alternatives, it claims that every process on the platform is permissionless and automated using smart contracts deployed on the respective blockchains. Whales Market has overseen pre-market trades for some notable projects that have conducted their token generation event since it launched. Some of these projects include Starknet, Wormhole, and Aevo.
Pre-Market Trading on Whales Market
On the pre-market platform, traders can create and fill orders for pre-launched tokens using smart contracts.
Sell-side smart contracts manage the custody of the collateral presented by the seller and the applications of penalties in case the seller fails to supply the agreed number of tokens before the settlement period. On the buyer’s end, a smart contract is developed to handle the custody of the buyer’s funds and the release of the agreed assets to the buyer when they are supplied by the seller.
The buyers’ funds and sellers’ collateral are locked in a condition-based contract pending the satisfaction of the trading conditions from both parties. In the event a seller fails to supply the asset, buyers can claim a designated amount of the seller’s collateral.
Points Trading on Whales Market
Points from projects like Kamino, Ether.fi, and friend.tech can be traded on Whales Market. The Points Market allows users to wager on these points prior to their conversion to actual tokens. The technology behind the Points Market is similar to the Pre-Market. However, in the Points Market, the seller is only able to claim the payment made for the points after they have been converted to proper tokens. In a case where the points weren’t converted to tokens by the project, the order gets canceled and the funds are returned to the buyer, for a filled order.
Whales Market claims that the smart contracts deployed on both ends of the trade ensure that users can securely trade their points without the need to trust each other or report to a central authority. The condition-based contracts for the Points Market treat the conversion of the points to tokens as a probability until an official announcement in that regard by the project, where the funds from both parties are held in the smart contract until these conditions are certain and satisfied.
Final Thoughts
Pre-markets are highly speculative, where they allow traders an early start on the trading of tokens before they are distributed and listed on exchanges. Pre-markets also offer investors a safer alternative to purchasing pre-launch tokens, as they involve either neutral third parties (centralized institutions) or decentralized smart contracts to enforce the smooth execution of a trade.
If you are looking to trade pre-launch tokens, you can consider centralized platforms like Kucoin or Bybit, or decentralized platforms like Whales Market, which also offers additional trading opportunities for points and OTC trades.
Pre-markets are still in their early stages, and users are advised to do their own research before purchasing any points or pre-launch tokens. Note that this article is only meant to educate readers on pre-market platforms and how they work, and should not be taken as financial advice.
Joel is deeply interested in the technologies behind cryptocurrencies and blockchain networks. In his over 7 years of involvement in the space, he helps startups build a stronger internet presence through written content. Follow the author on Twitter @agboifesinachi
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