Author: WuBlockchain

Translation: Deep Tide TechFlow

Deep Tide Introduction: What does "5% allocated to market makers" really mean in token economics? Is it borrowing or selling? What is the strike price? Do they have to return the tokens by expiration? These three questions determine the price trends of a altcoin for an entire year, but retail investors have almost never seen the answers. The unexpected exposure of the Movement Labs token protocol allows us to finally see how this black box operates.

If you, like me, have ever been curious about what "5% allocated to market makers" means in token economics, this article is worth reading. Is this 5% for borrowing or selling? What is the strike price? Must tokens be returned at expiration, or can options be exercised? The answers to these three questions can determine the price trends of a altcoin for an entire year, but retail investors have almost never encountered them.

Introduction

In the spring of 2025, a few months after Movement Labs launched the MOVE token, something both familiar and unusual happened in the crypto space.

It's familiar because this story follows the standard altcoin script: TGE marks the peak price, market makers are accused of continuous dumping, the project publicly denies the allegations, and the price gives the clearest verdict.

The unusual part is that the market making protocol itself was exposed. Chat logs, term sheets, market maker positions, strike prices, and the number of borrowed tokens were gradually made public through Twitter, investigative reports, and community discussions. For the first time, the industry could see, through a specific project, how the standard MM lending structure—"token lending + call options" protocol—can turn what should have been a liquidity service into a channel for market makers to sell off without cost after going live.

Looking back, MOVE is not an exception but a norm. The only difference is that someone leaked the protocol. Even beyond scheduled unlocks, the common ongoing selling pressure in altcoins is largely rooted in the same type of arrangements. But most of the time, these protocols are buried in PDF files, encrypted Signal groups, and informal understandings known only to the project parties and their market makers.

If we were to distill the evolution of the crypto market over the past decade into one core theme, it would be the gradual transfer of powers—previously controlled by a small group, including leverage, shorting, and information—through on-chain protocols to retail investors. Perpetual contracts have broken the asymmetry in the right to use leverage. Protocols like Shortit are breaking the asymmetry in shorting rights. Putting MM lending details on-chain will dismantle the final barrier: the information asymmetry of the primary market.

Once these three forces converge, the altcoin market will, for the first time, have a price discovery structure that rivals traditional capital markets.

This article explores these three waves of democratization: how they arose, why they are converging, and what the altcoin market will look like once realized.

The Threefold Asymmetry of Altcoin Price Discovery

Altcoins are not stocks. This may sound obvious, but nearly every structural problem in the altcoin market stems from a widely assumed but rarely stated fact: it has the facade of a financial market but nearly none of its underlying framework.

A U.S. stock IPO must go through SEC review, underwriter pricing, roadshows, lock-up periods, post-listing market making rules, and insider selling disclosure requirements. Each stage is governed by publicly available and enforceable rules. Retail investors may not sit at the same table as Goldman Sachs, but at least they know the shape of the table: the size of the circulation, when insiders are allowed to sell, who the market makers are, and whether there are restrictions on naked short selling.

Altcoins are different. From launch to secondary market trading, almost all the most important variables do not require mandatory disclosure. Actual effective circulation supply, market maker identity and positions, option strike prices, and unlocking timelines—variables that directly shape price expectations—are typically hidden from retail investors.

This structural opacity has long created three layers of asymmetry in the altcoin market.

The first layer is leverage asymmetry. In the early crypto market, especially before 2017, spot trading was almost the only option. Even when retail investors made correct judgments, they could only express them through unleveraged spot positions. In contrast, project teams, VCs, and market makers could amplify the same directional bets many times over through OTC lending, derivatives trading desks, and self-owned capital deployment. Thus, even if two participants have the same information in the public market, their ability to act is fundamentally unequal.

The second layer is directional asymmetry. Before perpetual contracts, the crypto market was essentially a long-only market. Short positions in BTC and ETH could barely be established through spot lending, while shorting altcoins was almost impossible. This created a peculiar equilibrium: the marginal incentives of almost every market participant pointed in the same direction, that is, to push the token price up before anything else. Since only price increases can generate returns, narratives, KOLs, media coverage, and marketing budgets have been incentivized to pull in the same direction. A significant part of the reason the altcoin market has long relied on narratives comes from its structural nature as a one-way market.

The third layer is information asymmetry. Even when retail investors gain access to leverage and shorting tools, they still do not know at what price or when to act. They do not know the actual effective circulation supply, how many tokens are lent to market makers, the option strike prices, or the economically rational choices of market makers at different price levels. Project teams know, VCs know, and market makers know. Only retail investors are left in the dark.

These threefold asymmetries have jointly created the most enduring power structure in the altcoin market over the past decade: project teams, early VCs, and market makers simultaneously control information and tools. They can reposition themselves before each round of token transfers to retail investors, ultimately shifting the price risks to participants who lack equitable access rights. This is a problem inherent in the design of the altcoin market, not a moral failing unique to a particular project.

Next is one of the most significant structural shifts in the crypto field over the past decade: how these threefold asymmetries began to unravel.

Perpetual Contracts: Democratization of Leverage

In 2016, BitMEX launched what seemed like a strange product in Seychelles: perpetual contracts, a type of derivative with no expiration date, that tracks spot prices using funding rates.

There are no precise equivalents to this invention in traditional finance. Traditional futures always have an expiration date, which defines their hedging and arbitrage structure. BitMEX eliminated the expiration date and introduced funding rates as a cost of holding positions. From an engineering perspective, this standardized indefinite leveraged positions, making them liquid and custody-able.

Prior to this, retail crypto investors wanting leverage could only use "margin spot trading" on CEX. In practice, this meant borrowing money from the exchange to buy tokens, with a cumbersome process, opaque costs, and primitive liquidation mechanisms. Institutions operated in a completely different manner, utilizing proprietary trading books, OTC lending, and cross-exchange arbitrage. Leverage had long been a standard part of their toolkit.

Leverage has existed for a long time. What perpetual contracts truly changed was their accessibility. BitMEX offered up to 100x leverage, allowing anyone with USDT to open a position. After Binance entered the market in 2019, this mechanism was brought to retail investors globally. The trading interface was simplified to two buttons: long and short, the margin ratio was automatically calculated, and the liquidation queue was visible to all.

The bull market of 2021 provided the ultimate validation of this shift: the daily trading volume of perpetual contracts surpassed that of spot trading. The main venue for price discovery in the crypto realm has shifted from the spot market to perpetual contracts.

This shift is often described as "retail being liquidated by perpetual leverage." This assessment is only half right. Perpetual contracts did indeed lead to many retail investors being liquidated when using high leverage, but they also gave retail investors a tool for the first time, allowing them to make leveraged bets on equal terms with institutions. Before perpetual contracts, even if retail investors accurately predicted market direction, the maximum size of their positions was restricted by the funds available for spot trading. After perpetual contracts, a trader's holding capacity is limited only by personal risk tolerance and margin management.

More frequent liquidations are the cost of democratized leverage. This is an inherent feature of the tool, not necessarily a flaw. A market that allows retail and institutional investors to bet at the same table must make everyone endure the same risk structure.

However, perpetual contracts only addressed leverage asymmetry. Even with 100x leverage, a retail investor expecting an altcoin to decline may still find no suitable tools. Most altcoins do not have perpetual contracts. Even when they do exist, liquidity is often so thin that funding costs eat into profits. Perpetual contracts solved the leverage and directional asymmetries of major cryptocurrencies but left two layers of unresolved issues: the directional asymmetry of altcoins and the information asymmetry of all tokens.

These are the problems that must be addressed in the next decade.

Shorting Rights: Democratization of Directional Exposure

If in 2023 you believe that a certain altcoin will decline—perhaps an L1 that peaked upon launch, a GameFi token whose valuation has become detached from its fundamentals, or an AI agency token whose narrative has faded—you will face an awkward reality: there is almost no way to short it.

Perpetual contracts on CEX cover only a handful of major cryptocurrencies. Most altcoins ranked beyond the top 50 either lack derivatives entirely or have only a contract with extremely poor liquidity. The order book may be so thin that a trade of a few tens of thousands of dollars can move the price by 5%. Funding rates may be persistently positive for shorts, meaning traders must pay a "shorting tax" every 8 hours, and the liquidation thresholds are extremely unfavorable for position holders. Therefore, even if the market judgment is correct, liquidity constraints may erode the ability of traders to act, making shorting mathematically unattractive.

Shorting through spot lending is virtually nonexistent for altcoins. No CEX is willing to maintain lending markets for long-tail tokens due to insufficient liquidity and excessive risk for lenders.

This has created a long-standing structural problem in the altcoin market: it is a long-only market.

A long-only market generates a set of specific equilibrium effects. The marginal incentives of all market participants point in the same direction. Project teams want prices to rise. VCs want prices to rise. Market makers want prices to rise, at least until options are exercised. KOLs want prices to rise. Media wants prices to rise. Secondary market retail investors want prices to rise. When everyone in the market can only profit when prices rise, narratives, traffic, marketing, and community operations all focus on a single question: how to push the price up a little more? This is an incentive structure problem that does not need to be framed as a moral issue.

A deeper consequence is that when no one can bet on declines, negative information can never be priced into the market. Efficient markets require both pessimists and optimists to bet against each other at the same price for it to approach fair value. For most of the past decade, only optimists have been able to place bets in the altcoin market. Pessimists’ only choice is to not buy, and not buying does not leave a signal in the price.

This is precisely the problem that on-chain shorting protocols like @youcanshortit are trying to address: allowing any retail investor to short any token at any time at a cost with transparent pricing. The core mechanism can be simplified as follows. The protocol maintains a lending pool that allows any token holder to lend their tokens to short sellers. Short sellers pay a transparent interest rate determined by supply and demand in the pool, rather than through the CEX black box. The stablecoins earned from selling the borrowed tokens remain in the protocol as collateral. If the token price rises, the position gets liquidated. If it falls, the short seller profits.

In traditional finance, this mechanism is known as securities lending, a market only open to institutions. In the crypto field, it must operate on-chain and be open to retail because no CEX is willing to provide this service for long-tail tokens. For them, it simply does not make economic sense.

The value of democratizing shorting rights is easily misunderstood. Most people think it simply allows retail investors to bet on price declines and profit from crashes. This is just the tip of the iceberg. Shorting has always been mathematically difficult, and the risks are asymmetrical, so even with tools, most retail investors may still struggle to turn a profit. What it truly changes is something deeper. Once tokens can be shorted, excessively optimistic narratives will be tested by short sellers, and overly pessimistic narratives will be tested by short covering. The altcoin market will begin to exhibit forms of bidirectional debate.

But even with bidirectional holding tools, retail investors still face a fundamental problem: they do not know at what price or when to short. The most important variables that determine short-term supply in altcoins—the market maker positions and option strike prices—remain invisible to them.

This is the third form of asymmetry and the real last mile.

On-Chain Lending Information of Market Makers: Democratization of Information

A. Standard Structure of Market Maker Lending

To understand why market maker lending is at the core of altcoin information asymmetry, it is first necessary to comprehend its standard structure. Even retail investors who have spent years in the cryptocurrency field may have heard the term "market maker" but have never seen what a real market maker protocol looks like.

Agreements between altcoin projects and market makers almost always follow the same template: lending + call options.

Shortly before the TGE, projects provide a certain number of tokens to market makers in the form of "lending," typically equivalent to 1% to 5% of the circulating supply. From an accounting perspective, the term "lending" is crucial. The project does not "sell" tokens, so it does not need to disclose any sales revenue. In the token economics documentation, these tokens are still classified as "market maker allocation" or "liquidity reserve." The agreements typically last 12 to 24 months. Upon expiration, market makers have two options: return the same number of tokens or purchase them at the predetermined strike price. In financial terms, this buy or not buy choice is a European call option. The strike price is usually set 25% to 100% higher than the TGE price.

The agreements may also include profit-sharing arrangements, minimum return clauses, and market-making obligations, but lending + call options are the underlying framework.

This structure is highly attractive to both parties. The project gains immediate secondary market liquidity without directly selling tokens. From an accounting standpoint, there are no sales, and the narrative around token economics remains clean. Market makers enjoy an even more favorable position. They acquire a large inventory without upfront costs and gain upside options while taking on almost no downside risks. If prices fall below the TGE price, market makers merely need to return the tokens without having to recognize impairment losses. The incentives are asymmetrical. The project bears the opportunity cost, as if token prices rise and market makers exercise, the project misses the chance to sell these tokens at a higher price. Market makers capture all the upside gains with almost no downside risk. This is why market making has become one of the most profitable businesses in the cryptocurrency space over the past few years, even though almost no retail investors understand the actual structure of this business.

B. How This Structure Systematically Drives Price Dumping

Once the protocol structure is understood, it becomes clear why many altcoins face ongoing selling pressure even beyond token unlock dates. The key is to examine the rational choices of market makers at different price levels.

When prices are far below the strike price, the probability of market makers exercising is close to zero. When the market price has already dropped to $0.50, they won’t purchase tokens at a $2 strike price. In this scenario, the borrowed tokens have no long-term ownership value for market makers since they must ultimately be returned. The rational decision is to sell before repayment, buy back at an even lower price, and lock in the price difference. Each round of "selling high and buying low" allows market makers to profit from the tokens the project lent to them. Any portion not constrained by profit-sharing becomes pure profit for market makers.

As prices approach the strike price, the incentives become more complex. If prices rise above the strike price, market makers are required to purchase the borrowed tokens at expiration at the strike price. Rising prices favor market makers, but exercising still comes with a cost. The rational approach is to sell in advance as a hedge, partially offsetting potential exercise obligations. From a market perspective, this creates an invisible supply wall near the strike price, thereby suppressing attempts to break through that level.

These two mechanisms together generate one of the most common yet hardest to explain phenomena in the altcoin market: ongoing and seemingly irregular selling pressure outside of token unlocks. Retail investors see prices dropping but cannot find any unlock events that explain it. This is because the selling pressure does not come from the projects or their VCs, but rather from market makers holding the project’s "loaned out" tokens. In the token economics documents, these tokens are classified as "liquidity reserves." However, from a trading perspective, they are already in circulation and generating continuous selling pressure.

This is the structural basis for what is known as "market control." When the price of a token seems meticulously controlled within a certain range, with each uptick repeatedly hitting a ceiling and each downturn consistently finding buyers, there is likely a model of market maker behavior driven by options at play. Retail investors simply cannot see its parameters.

Figure: Dumping mechanism illustration—Market makers engage in "selling high and buying low" when prices are far below the strike price, and preset sell-offs when near the strike price, forming persistent invisible selling pressure outside of unlocks. Source: WuBlockchain

C. What On-Chain Information Should Be Disclosed?

If market maker lending is considered the most important black box variable in the altcoin market, the next question is what information should be disclosed.

Not every detail needs to be public. The quoting algorithms and risk management parameters of market makers are part of their alpha, and putting these on-chain would undermine their business models. What should be disclosed is a minimal set of information that directly impacts retail price expectations while not exposing the proprietary algorithms of market makers: the number of tokens lent and their associated wallet addresses, contract terms, strike prices, unlocking and repayment schedules, profit-sharing mechanisms, and any minimum return and default clauses.

These six fields together provide retail investors with enough information to infer the rational responses of market makers across different price ranges using standard financial analysis, transforming the current black box into a modelable supply curve. The specific trading behaviors of market makers constitute their alpha and do not need to be disclosed. What should be disclosed are the incentive parameters behind those behaviors.

Figure: Six fields that should be disclosed on-chain—amount and address of lending, contract terms, strike price, unlocking and repayment schedule, profit-sharing, minimum return, and default clauses. Source: WuBlockchain

The technical implementation is not complex. A standardized model, a contract that requires every token lending to be recorded in an on-chain registry, and an index service that analysts can query can be built with a few hundred lines of EVM code. The real challenge has never been technical but rather motivational: how to persuade projects and market makers to put this information on-chain. This is what the next section will discuss.

D. What Changes Will Happen in the Altcoin Ecosystem After Disclosure?

If such disclosures become a reality, the altcoin market will experience several immediate changes.

The selling pressure structure will become readable. The "circulating supply" reported in token economics documents will for the first time be separated from the number of tokens loaned to market makers. Retail investors will be able to directly calculate:

Reported circulating supply + Tokens loaned to market makers = Actual sellable supply

Once the strike price is publicly disclosed, price fluctuations near the strike price will be anticipated by the market. The strike price will become a new key level in altcoin technical analysis, similar to the "institutional cost basis" in the stock market, but more precise because it is written in the contract. In conjunction with shorting tools like Shortit, retail investors will at last be able to build symmetrical positions around the strike price.

Accountability will become enforceable. Today, when a token plummets, projects can claim it is "market behavior," and market makers can claim it is "passive hedging." After disclosure, each outflow from the market maker's wallet will correspond to a public contract, and any dumps can be attributed to specific project-market maker pairings. Reputation costs will enter the decision-making functions of market makers for the first time. Projects will no longer be able to simultaneously say "the team is not selling pressure" and "we are working with top market makers." After disclosure, they must choose one or the other.

The most significant second-order effect will be the "transparency premium." Once some projects begin to disclose voluntarily, those that do not will be assumed to be in the worst-case scenario, somewhat like proof of reserves. Retail investors will assume these projects have loaned out a large number of tokens, set low strike prices, offered generous minimum returns, and thus discounted valuations. Therefore, disclosure will transition from a cost to a signal and from a form of self-restraint to a tool for gaining valuation premiums. This is the intrinsic incentive that makes any disclosure mechanism sustainable. It is driven not by compliance pressures but by market pricing pressures.

Of course, what I just described is an ideal scenario. In reality, implementation would be extremely difficult.

The Altcoin Market After the Convergence of Three Forces

Leverage, direction, and information. The three types of asymmetries discussed in the previous sections have been addressed in the past decade by three different types of protocols. When these three waves of democratization are considered together, a new market structure begins to emerge.

Figure: New altcoin market structure after the convergence of the three waves of democratization—price discovery shifting from "narrative + liquidity" to "information + expectations." Source: WuBlockchain

The democratization of leverage enables retail investors to amplify their bets when they correctly judge market direction. The democratization of shorting allows them to hold positions when they expect prices to decline. The democratization of information enables them to know for the first time at what price and when to place their bets. Only with all three in place can retail investors finally have a complete set of tools to compete with institutions at the same table.

Once these three tools are in place, the price discovery mechanism itself will begin to change.

Altcoin price discovery has long been dominated by two factors: narrative, or whose story can attract the most attention; and liquidity, or who can deploy the most capital to push prices to specific levels. Before these three waves of democratization, both were consistently controlled through coordination among projects, VCs, and market makers. Retail investors were always the recipients of narratives and providers of liquidity. The former determined what they bought, while the latter determined when others dumped on them.

Once these three asymmetries are broken, the core driving forces of price discovery will shift from "narrative + liquidity" to "information + expectations." Retail investors will no longer only see KOL call orders and K lines; they will also be able to see readable market maker contract disclosures, transparent lending pools, and a set of modelable option strike prices. Narratives will continue to exist, but they will no longer solely drive prices. Information will immediately price in the bubbles created by these narratives.

It is important to note that this will not eliminate the room for coordination between projects and market makers. Sophisticated players will continue to find new strategies, such as splitting option structures into off-chain subprotocols, diversifying strike prices through multi-leg derivatives, or using DAO-governed tokens instead of direct token lending. Every evolution in disclosure rules will create new evasion methods. This is normal in any financial market.

However, the marginal costs of this coordination will significantly increase. Today, when projects and market makers design contracts that harm retail investors, the marginal cost is nearly zero because no one can see them. After disclosure, the market will identify and price any overly aggressive terms. The design of contracts will itself become a public game. Collusion will not disappear, but returns will substantially decrease.

The more significant second-order effect will be a reshuffling of the composition of market participants.

The MOVE project discussed in the introduction is a concrete example. But similar projects have accounted for the majority of new supply in the altcoin market over the past three years. Their core business model is "low liquidity + high FDV + aggressive market-making + narrative-driven rallies." Under disclosure mechanisms, they will be immediately repriced according to the actual supply curves, erasing the economic basis for their existence. The exit of these tokens will significantly lower the overall valuation baseline of the altcoin market.

Projects with genuine demand, willing to disclose actively, and adopt on-chain market-making will gain valuation premiums, a more stable retail holder base, and longer market lifetimes. Such projects are rare today, but disclosure mechanisms will create positive feedback for them in the secondary market, leading to their exponential growth.

A new type of participant will also emerge: on-chain market making protocols themselves. Once all key parameters of market making arrangements must be recorded on-chain, the role of market makers will become partially protocolized. Fully intelligent contract-driven "algorithmic market makers" will emerge. Projects will configure parameters based on public models, and contracts will automatically execute market making and token repayments, removing the intermediary layer represented by firms like GSR and Wintermute. The market making business will transition from "relationship-driven + information asymmetry" to "protocol-driven + standardized," ultimately reshaping the industry structure of altcoin market making.