Majority of Investors Not Ready to Buy Pre-Launch Protocol Tokens, Despite Big OTC Discounts


  • Secondary OTC market is making tokens available for pre-sale at a lowered cost.
  • Investors are apprehensive about investing, due to all of the scams that have advertised similar sales.

The cryptocurrency industry can get expensive after a while and getting free or “discounted” tokens would be a great deal. Next-generation protocol tokens, like Polkadot, have already been confirmed to be discounted on a semi-liquid secondary market. However, based on reports from The Block, it does not look like these investors are prepared to get involved.

There are plenty of over-the-counter trading desks that are allegedly reaching out to investors to sell massive token volumes that have been purchased in private sales. The tokens are then distributed over and over as Simple Agreements for Future Tokens. This means that, when a fund is launched, they have the right to token startups that have yet to come.

Multiple sources confirmed to The Block that there are about four separate sellers right now that are offering anywhere from 15,000 to 60,000 Polkadot DOTs. While only one deal is confirmed as having been processed, that deal offered a 50% discount on the DOTs sold. Polkadot has remained silent on their private DOT sale, but the pre-sale DOTs were available to purchase at $30 each, with the hope that the token holders with this discount would end up “contribut[ing] in some meaningful way to the system,” as CEO Jutta Steiner of Parity said.

Unnamed sources also confirmed three Dfinity SAFTs on the market right now with “vastly different prices and discounts.” Though unconfirmed, there are rumors of an “active” FileCoin SAFT market. However, that is where the information ends.

At best, as The Block puts it, the token sellers are “murky,” and most of these negotiations have been preceded with non-disclosure agreements. Still, it is possible that these parties are simply early investors that got involved in the pre-sale but are needing to gain a profit from the sale or as a result of the price drop.

Even though these sales are offering excellent deals, The Block names a few significant repercussions that could happen. The first problem is that the valuation of the protocols, which are currently in the billions, could end up being questioned if the tokens reach lower price bands. The second issue is that there is a chance that purchasing the SAFTs could cause the sellers to be in breech of certain agreements that prohibit third-party sales. The final risk is that the individuals that chose to by the SAFTs from third parties could be putting themselves at risk for threats that come from being the counterparty.

Much of this risk has to deal with the fact that buyers have to spend their money first, though they won’t get the private key with access to the tokens until later. The lack of an instant transaction means that there is a chance of the seller never even sending the tokens. Furthermore, what if the seller holds on to a copy of the passphrases that grants them access to the private key? Since the tokens have yet to actually be issued, there’s an even bigger risk that they will never be assigned.

One analyst based in Asia commented that this type of transaction is considered “the most risky OTC trade in crypto.” That does not mean the risk cannot be mitigated. In fact, The Block points out that the USD funds could be held by a lawyer, who would then put the funds in escrow while the buyer waits to be provided with the token transfer. If the OTC desk wanted to play a part in the solution, they could choose to take on the risk, though there would likely be fees assessed for this type of security.

Regardless of the possibility of a solution, investors are hesitant to get involved with SAFTs at all. The market rarely sees legitimate token sales on the secondary level, and there are even investors that have been involved for years without seeing one. Nevin Freeman, CEO of a stablecoin firm named Reserve, noted that an investigation revealed a group of scammers had developed a fake version of an OTC market on Telegram.

Freeman added,

“I want people to know about the dangers of some of these second-hand token sales. I want to warn them.”

Still, he admitted that there are still some P2P brokers that are completely authentic, but they usually sell at a higher price, rather than a discounted one, because their supply is limited.

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