FTX HEDGE token mechanics | A synthetic floor
FTX HEDGE/USD tokens are ERC20 leveraged tokens similar to bull and bear tokens by FTX and Binance BLVT Up and Down tokens.
I wrote an article about FTX bull and bear tokens a while ago, which you can find here.
I have been attempting to understand HEDGEUSD tokens offered by FTX.com. Unfortunately, google search and FTX documentation aren’t enough effort. If anyone tells you these tokens are a “scam,” ignore them. Some can’t admit they don’t understand them. Neither do I, but I try.
From my own observation, the market often develops short-term bottoms after such spikes. Unfortunately, this is not always the case, although there are occasions that we face a greater risk to the downside. Additionally, if the market sets a lower low, HEDGEUSD does not make a higher high.
This seems to be some mechanic at play. Fearful of a price collapse, traders purchase HEDGEUSD, a token that offers 1x leveraged short position. When a significant number of people purchase HEDGEUSD, the token usually experiences a brief surge before stabilizing.
For example, bitcoin starts dropping and then reversing the course to reach previous support thresholds until falling again. These hedged traders who used hedge tokens were not selling their own BTC but could hedge their risk with these tokens that enabled them to be short with 1x leverage and no risk of liquidation. Instead, they sold their hedge tokens to the other side (the market maker) to get rid of their short position, and the market maker has to get delta neutral at some point by most likely buying BTC spot or futures.
Traders will exit their 1x short stake by selling their HEDGEUSD tokens if the price declines. This effectively sells our 1x leveraged short position to the market maker. This essentially implies that now the market maker owns the short position we got rid of.
In this situation, we gave it to our Uncle FTX Sam and our great uncle Sam is willing to bend over and take up all the risk you put on him. So, unfortunately, Uncle Sam will have to deal with our risky 1x leveraged position along with his other nerds at Alameda.
However, this implies that the market maker would eventually get delta neutral and hedge that short position. The market maker needs to rebalance his books or get delta neutral by opening another trade, such as buying futures or the underlying asset (BTC). It may reminds you of the infamous “Gamma Squeeze”.
When these spikes occur in HEDGEUSD, it becomes more difficult for the market to crash further and continue falling more to the downside. Buyers who bought hedge tokens will close their hedges by selling their tokens, resulting in the market being exposed to a short position which he has to hedge. The price might decline further, but the rate of change will be less severe.
Frequently, it creates a synthetic floor in the market. It does not guarantee a solid bottom. It can decline further, but the market rate of downside risk becomes less pronounced before a new stimulus triggers people to revalue risk drastically. Elon Musk, for example, may tweet that the price is too high or express regret about the high cost of energy. On the other hand, the price might surge and then crash, at which stage we would have to wait before the next MOVE contract expires. Another topic is the daily rebalances.
If you don’t have an account on FTX, you can use my link for a 10% discount instead of a 5% discount from other links. You get a discount, and I get more ammo to buy dips
I am posting this but can’t discuss it on Twitter with you all since I am forever suspended. I’ve been asked to create a new Twitter account, but I refuse to use a VPN and play hide and seek from Jack and his algo’s. The reason I am banned is because of an old video of 2019 with music in the background. UMG music group ran a bot to auto-report people, and I ended up being banned. I did fill in a form for an appeal to Twitter and made numerous support tickets. Not really a great way to treat users who have been using your platform and are invested in the same asset class as you are.
So no, I don’t have a new Twitter account, and neither do I read any tweets or manually go to Twitter. It was fun while it lasted, I hope I get my Twitter back, but I don’t think they care much. Else it was fun while it lasted, and for once, I contribute something again. It’s a bit weird because I’ve been on CryptoTwitter since I was 17.
Why did I end up sharing this potential edge? Idk man, I just want everyone to have a girlfriend. It started as a meme, okay, but I started actually wanting to see memes become a reality.
The meme where it all started
So either, I hope to tweet with you all again soon or farewell forever. I hope you all get a girlfriend
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My old Twitter was https://twitter.com/RNR_0
