Cryptocurrency is a breeding ground for opportunities, including the traditional ways of trading tokens on exchanges during and after the listing period. However, pre-market trading allows users to transact claimed tokens before listings or Token Generation Events. In this article, we’ll explore the concept of pre-markets, the mechanisms, benefits, and how to navigate the risks.
What Are Crypto Pre-Markets?
Pre-market trading in crypto involves buying and selling tokens before they’re launched or listed for official trading in the market. However, cryptocurrency pre-market mechanisms extend beyond tokens. Sometimes, users may transact protocol points on these platforms to increase their token allocation for future airdrops.
How Do Crypto Pre-Markets Work?
Cryptocurrency pre-market operates as a peer-to-peer platform, enabling users to buy and sell tokens and protocol points at predetermined prices before the official listing. Trading occurs between the announcement of token allocation, token distribution, and the official launch.
During crypto pre-market trades, sellers must deposit collateral, while buyers must deposit the full value of the asset they wish to purchase. Both sellers and buyers can create an order or fill an existing order to trade. These deposits are held until after the official listing when the trade can be settled.
Types of Crypto-Pre Market Trading
The common types of pre-markets in crypto include:
- Token Market
A token trading market is a platform where buyers and sellers trade crypto tokens prior to the official listing or Token Generation Event. This market allows airdrop recipients and presale investors to sell their tokens at agreed-upon prices before the tokens are officially distributed and listed for public trading.
- Point Market
Cryptocurrency startups may employ point-based reward systems for users’ activities or contributions to their platform. In such reward systems, projects may allocate tokens depending on the number of points. However, these points have no financial value until they’re exchanged for cryptocurrency tokens.
Point markets allow users to trade projects’ accumulated points for cryptocurrency. Similar to the token market, traders can also place deposits that are held until the trades are finalised.
What Are the Types of Crypto Pre-Market Platforms?
Two pre-market platforms offer Over-The-Counter trading for crypto traders before the Token Generation Event. The types of crypto-premarket platforms include:
- Centralized Exchanges
Centralized exchanges act as custodians or provide third-party custodian services to facilitate pre-market trades between buyers and sellers. This ensures traders can safely buy and sell tokens before the official exchange listing.
- Decentralized Exchanges
Decentralized exchanges create a trading environment for buyers and sellers through smart contracts. The smart contracts act as intermediaries, holding and releasing funds to ensure trustless transactions. A typical example is Whales Market, a decentralised platform that allows users to trade pre-TGE tokens and protocol points across blockchains.
How to Buy and Sell Token Allocation on Whales Market
Users can trade tokens by filling others’ offer-to-sell or creating an offer-to-buy.
The “fill other’s offer-to-sell” option requires users to choose their preferred buying price and make deposits. Smart contracts facilitate and store these deposits until the funds are delivered. Filling an existing offer can be either a single fill, where one user single-handedly fills the offer, or a partial fill, allowing multiple people to contribute. Once the deposit is successful, users can execute the order and wait for the smart contract to complete the transaction.
If there are no suitable market prices, users can use the “create an offer-to-sell” option to gain better control over the transaction. This option allows interested sellers to fulfil the offer individually or through multiple contributions.
The process for selling token allocations parallels that of buying. Users can either use the “fill other’s offer-to-buy” to select a preferred listing or “create an offer-to-sell” option if there is no preferred listing price available in the market.
How to Buy and Sell Protocol Points on Whales Market
Acquiring protocol points requires filling an offer-to-sell or creating an offer-to-buy.
Users can buy protocol points through available offers. If there’s an existing suitable offer, they can make deposits which would be facilitated and held in the smart contract. Once the protocol announces the points-to-token reward ratio, the platform will automatically show the equivalent number of tokens. After the buyer has received the tokens, the seller will receive the deposited funds. Filling of offers can either be a single fill which involves a single user or a partial fill involving multiple users to contribute to fulfilling an offer.
The method for selling protocol points parallels with that of buying. Users can fill the “offer-to-buy” if there are suitable price offers, or create an “offer-to-sell” if there are none. Sellers must deposit collaterals to guarantee commitment to deliver the token allocation to buyers. Sellers can reclaim their initial deposits once the protocol points have been converted into token equivalents and successfully transferred.
Advantages of Crypto Pre-Markets
Crypto pre-market trading provides various benefits for investors and crypto enthusiasts. The advantages of crypto pre-markets include:
- Price Speculation and Initial Pricing
Crypto pre-markets can help to speculate future token prices and aid price discovery. Investors can use pre-markets to assess the potential performance of tokens using price fluctuations and various external factors before the official listing and trading begin.
- Accessibility
Crypto pre-markets provide an extended trading window for airdrop recipients and investors. Those whose schedules don’t align with the official trading period can buy and sell tokens conveniently.
Disadvantages of Crypto Pre-Markets
The crypto pre-markets pose certain risks for traders and investors. Some of the risks include:
- Low Market Participation
Crypto pre-markets experience low market participation during trading hours. This is due to the relatively small number of traders engaging in the exchange. The reduced trading activity can increase price fluctuations, which may confuse traders.
- Low Volume and Liquidity
Investors may experience low trading volume and liquidity problems in crypto pre-markets. Unlike regular trading hours, pre-markets experience low trading volume due to low participation rates, which may make providing liquidity difficult.
Conclusion
Pre-markets provide the avenue for buying and selling crypto tokens or protocol points before the official token launch. The approach enables airdrop recipients and presale investors to sell protocol points and tokens at predetermined prices through centralised and decentralized platforms. While pre-market trading may offer various benefits such as accessibility and initial price discovery, it can be challenging for traders due to price fluctuation, low volume and liquidity.
The crypto pre-markets operate as a peer-to-peer channel, allowing trustless transactions between buyers and sellers. However, pre-markets are still emerging in the cryptocurrency world. Therefore, users should ensure due diligence before selling or purchasing pre-launched tokens.
Personal Note From MEXC Team
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