Description
This is a trade and not an investment. The trade is in crypto world and will work out over this weekend. Probably not the most suitable case for VIC, but hopefully, some members will find this useful. Otherwise, feel free to down-vote.
The trade concerns FLOW tokens. More precisely - shorting FLOW tokens through derivative contracts. While that might sound overly complicated and risky, I do not think it is and the setup is really attractive.
This Saturday (16th of October) a massive amount of FLOW tokens will be unlocked and will become immediately transferable and tradeable. In a single day circulating supply is due to increase fourfold from 72m to 316m tokens. The circulating market cap will increase from $1.2bn to $5bn. The exact timing of the unlock has not been announced except for ‘morning PST / evening CET’.
The locked token owners are sitting on gains of 170x relative to investments made a year ago. Development team members are due to become multimillionaires. For some this might be life-changing money currently sitting in the form of still locked FLOW tokens. Community sale was capped at $1,000 per person. Token was priced at $0.1 vs $17 currently. Today this $1,000 investment is worth $170k and half of it will unlock on Saturday.
Early institutional backers, including some notable VC/crypto players, are in the same position - salivating over eye-watering returns of 170x. Half of their tokens will also unlock on Saturday.
Full details on token distribution and investors can be found here. The table below illustrates the whole situation pretty well - this Saturday is the end of Month 12.
All of this to say - FLOW token will drop like a rock in the upcoming days. How far down will it go, I have no idea - just a few months ago FLOW token was trading at mid-single digits without any added selling pressure from the fourfold increase in float.
Luckily for speculators, there are relatively liquid perpetual future markets (daily volume >$50m) to benefit from the expected token price decline. Both FTX.com and Huobi.com offer future markets on FLOW tokens. Setting up accounts takes less than 5min. Fund transfer is equally fast, especially if one has reserves in crypto form or on crypto exchanges. There might be some geographical limitations. I am not able to comment on credibility on these exchanges, but at least FTX seems to be solid having recently raised $0.9bn at $18bn valuation from the likes of Sequoia, SoftBank, Third Point and etc.
Funding rates to maintain perpetual futures position are quite excessive but as the trade is for one or two days only, these are more than manageable. FTX charges based on the difference between the index price (i.e average FLOW token price in the markets) and futures price. Settlement is hourly. Currently, the rate is around 5% per DAY, but might increase if the spread widens. Houbi has some mysterious way of calculating the funding rate, but this seems to be capped at 4.5% daily and settled every 8 hours.
High funding rates have also limited hedging possibilities for the currently locked token owners (i.e. hedging way in advance is too expensive) - I am guessing almost all of the to-be-unlocked positions are unhedged.
You can find more background about the FLOW project here, here and here, however, I do not think any of it is really relevant for this trade to work out.
Flow Network is a blockchain designed specifically for non-fungible-tokens (NTFs). It was created by the authors of CryptoKitties, who decided to launch their own platform after CryptoKitties congested Ethereum network. The project had some notable wins including NBA Top Shot and apparently has a high number of companies building on the network. The FLOW token itself is used for transacting on the network, i.e. utility token. There are numerous other blockchains with NFT compatibility or in the process of building one, including Ethereum, Tezos, Was, Binance, Cordano and etc. Flow Network is clearly not the only game in town. Almost all of the most popular NFT trading platforms (as well as NFTs traded on them) are built on Ethereum network. The only exception is NBA Top Shot, which is based on Flow, although most of its users do not even know that.
Risks
It's crypto world, anything can happen. I am not a trader, so I might be misunderstanding the market forces involved in this situation.
The team behind Flow Network might have a big announcement ready to be issued together with the unlock and cause a squeeze on the token price.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
Token unlock on the 16th of October