Market makers accused of enabling off-market trading for locked tokens

Reports have surfaced alleging that venture capital firms and angel investors are bypassing token lock-up arrangements by collaborating with market-making firms to trade locked tokens off-market.

These practices, detailed in a Bloomberg report, have raised ethical concerns within the cryptocurrency industry.

Market-making firms such as Wintermute, Flowdesk, Caladan, and others are reportedly facilitating these trades through secondary markets.

Joshua Lim, co-head of Markets at Falconx Global, explained that these firms are “constructing two-sided books on these tokens that exist outside centralised exchanges,” enabling investors to hedge positions or liquidate assets prematurely.

David Bachelier, chief markets officer at Flowdesk, confirmed the emergence of a secondary market for locked tokens since mid-2023.

While still in its early stages, Bachelier noted the demand for such trades indicates potential for innovation and growth.

Some investors reportedly use mechanisms like Safe Agreements for Future Tokens (SAFTs) or forward contracts to sell token rights or hedge against price fluctuations without waiting for official unlock periods.

Critics argue these practices undermine the projects involved.

José Maria Macedo, a prominent crypto commentator, condemned investors who engage in such activities without project approval, labeling them as harmful to the teams they are supposed to support.

“Teams should be more aggressive in suing these rats for breach of contract,” Macedo stated, urging stricter enforcement measures.

The controversy highlights the tension between investor interests and project integrity in the cryptocurrency space.

Token unlock mechanisms are designed to ensure controlled distribution and prevent market disruptions.

However, the rise of secondary markets for locked tokens raises questions about transparency and fairness in tokenomics.