Pre-market trading innovation: Coral Finance's tokenization solution

Preface

Pre-market refers to the well-known 'over-the-counter (OTC) trading' of unissued projects, which means that the project tokens are allocated in advance through testnet tasks, social media interactions, and lottery draws. Since the tokens are not actually issued, they are pre-allocated to market users for token expectations through a whitelist or points system in advance.

Pre-market trading has experienced rapid development in recent years, and its trading content has gradually evolved from the initial Allowlist to various methods such as points, PASS cards, badges, etc. It can be seen that in the current market, more and more project parties are choosing to continuously attract users and create project expectations through pre-market trading.

However, we can see that there are currently many issues in the pre-market, as assets such as points and Allowlist are all off-chain assets, which leads to various risks such as unclear distribution rules, unknown Token listing time, inability to trade before the market opens, and low capital utilization due to user trading requiring double collateral. These risks have been evident in recent projects that have released Airdrops, such as Blast and zkSync. If the pre-market could be tokenized and the original off-chain assets were traded on-chain, could these problems be solved? It would not only give users the possibility to trade before the market opens, but also drop various risks during the pre-market trading process.

Coral Finance was born from this, and this article will start from the current situation of the pre-market, to explain the huge potential and rampant chaos in the current pre-market, and to provide a detailed interpretation of Coral Finance's innovative solution for tokenization of the pre-market.

The Huge Potential and Chaos of the Pre-Market

For users, the main purpose of the pre-market is to bring reasonable market expectations to users before the official release of the project Token, that is, users can reasonably calculate the profit space after the project officially launches Token based on the current pre-market price, total circulation, and other data. At the same time, the pre-market can also help users to lock in profits in advance before the official launch of the Token, as the points and Allowlist held by users initially cannot be traded on DEX/CEX like Token, but the emergence of the pre-market allows users to lock in profits in advance through the previous Over-the-counter Trading method or the current on-chain trading method before the official launch of the project Token. And the pre-market can also give users some psychological comfort to some extent, that is, users will think that the points and Allowlist they currently hold can be converted into specific Token quotas in the future, making the originally vague Token expectations more concrete.

For project parties, the development of a project also requires pre-market trading to build a healthier chip structure. In the early stages, the core purpose of project party issuance points is to attract user participation and product experience. By incentivizing users to stake assets, forward on social media, and participate in the protocol, the project party can expand its reach and influence. A broad and active community ecosystem is the foundation of every successful project. The Token Airdrop after TGE is essentially a reward for users' participation and contributions to the community. However, in today's market, some professional 'lumaos' (referring to those who engage in fraudulent activities for personal gain) accumulate a large number of points by registering accounts in bulk and using automated tools to participate in project activities. This phenomenon not only distorts the true distribution of chips but may also increase the threshold for real users to participate in the project, as the more 'lumaos' there are, the more volatile the expected returns become. When the Token TGE occurs, these studios may choose to sell and cash in their profits, which could create a significant amount of selling pressure in the market and put downward pressure on the Token price. If chips are highly concentrated in the hands of a few studios, once they start selling on a large scale, it will not only harm the interests of ordinary users but may also cause the project's coin price to collapse from the beginning, affecting the project's long-term development. Pre-market trading allows early participants, including studios who may hold a large number of chips, to have the opportunity to trade before the project officially launches. This not only helps alleviate the immediate selling pressure during Token TGE but also helps project parties gradually achieve chip decentralization through market mechanisms and promote a healthier Token distribution.

In the TradFi space, the Derivatives market has an absolute advantage over the Spot market in terms of trading volume, with the former being nearly 5 times the latter. Similarly, the Derivatives volume in the encryption market is also much larger than the Spot volume. Derivatives provide users with higher flexibility and diversity, allowing investors to adopt various trading strategies in different market conditions. We can also understand pre-market trading as a Derivatives market based on expected Token. Assets such as points and Allowlist based on Tokens are actually a type of Derivatives. Although pre-market trading has enormous potential in concept, the current development stage is relatively primary due to the lack of a centralized platform to provide sufficient Liquidity, resulting in unmet trading demand.

By further observing the market dynamics, we can see that the actual application of pre-market is expanding rapidly, indicating that it is gaining recognition and adoption as an innovative financial instrument in the market. As of now, among the top 30 mainstream Decentralized Finance projects in the market, the overall Market Cap of projects adopting the pre-market approach is about $29.5 billion, accounting for approximately 31% of the total. This shows that the pre-market is developing rapidly and gradually becoming a mainstream choice for project parties in the current market, with significant potential for rise. This approach is also adopted by projects conducting Airdrops in the near future.

Data source: Statistics based on Defilama's data Similarly, although the pre-market has experienced unprecedented development, it still faces many problems and influencing factors, which are gradually being exposed in market projects. There are five main points:

1. The imbalance between buyers and sellers restricts the utilization of user funds: Simply put, the current pre-market trading is more off-chain and long, relying on manual matching by a third party (individuals/institutions, etc.), to manually sort and match the trading demands of buyers and sellers. During this process, both the buyer and seller need to deposit a sum of money with the third party to lock in the transaction in advance, but this significantly drops the user's fund utilization. Moreover, if the seller believes that the expected profit space of the pre-market trade is much greater than the value of the deposit paid, there may be a situation where the seller regrets the trade. In this process, the buyer can only receive a portion of the funds slashed from the seller, but loses the high token returns afterwards, making it an extremely unequal transaction for the buyer. It not only drops the user's fund utilization, but also deprives the buyer of the high token returns after it goes online.
2. Unable to provide pre-market Liquidity and allow instant trading: From the above-mentioned trading process, we can see that the pre-market is mostly composed of off-chain assets, so it can only be manually matched. This process requires a lot of manpower and energy, and it cannot provide Liquidity for assets and allow instant trading like DEX, which greatly affects the trading efficiency of the pre-market.
3. Pre-market cannot reflect the expected price of Tokens: Due to the off-chain matching nature, there is no unified trading market in the pre-market to reflect the expected price of Tokens. We can think of each third party as a small pre-market trading market, and the trading price in this market depends on the user group that the third party can reach. Therefore, the prices among different 'small markets' are not unified, and cross-market transactions are not possible. This leads to the current pre-market being unable to accurately reflect the expected price of Tokens.
4. Unknown project Token launch, significantly increasing user time cost: This issue has been reflected in zkSync, which recently released an Airdrop. zkSync clearly stated early on that there would be a Token Airdrop in the future, which encouraged a massive number of users to participate in its major Airdrop incentive activities. However, the project did not specify the exact time for the Token launch. This leads to a situation where the project constantly stimulates user expectations for the Token launch through various Favourable Information messages before the Token goes live. For users, since they don't know the specific date of the Token launch, they have to weigh and decide whether to continue spending time and energy on the project's major Airdrop incentive activities. The sunk cost incurred in this process is huge for users. Suppose a user persists in completing all major incentive activities, whether the final profit can cover the various costs incurred earlier and bring in excess income is unknown. In the case of zkSync, the Token launch was delayed by a full 4 years, during which users invested a massive amount of time and energy, but in the end, the gains did not outweigh the costs.
5. Unclear rules for pre-market distribution: Due to the fact that the pre-market is mainly off-chain assets, the distribution rules and process are not transparent, making it easy to see risks such as project parties modifying the distribution rules at will, or engaging in insider trading. The recent Airdrop project Blast is an example. For instance, @Christianeth encountered a situation where the project party continuously adjusted the distribution rules during the activity. As a result, even though they staked 50 million US dollars, they only received an Airdrop reward worth 100,000 US dollars after four long months.

Image source: It can be seen from this that the pre-market is still in a chaotic state while being full of potential. There are also projects in the current market that are tokenizing the pre-market, and Pendle Finance and Whales Market are doing well in this regard. However, they still have some limitations or potential risks, which we will compare in detail in the following chapters.

Analysis of Coral Project

Coral is committed to being the expected market and Liquidity center for Token voucher assets. To bootstrap the project, project parties usually attract users to participate in the project and build a community by issuing points, PASS cards, Allowlists, and other Token voucher assets. These vouchers will also be rewarded to users in the form of Token Airdrops in the future as a recognition of their contributions. Due to the different values of project Tokens and the expectations of Airdrop vouchers among users, Coral will establish an expected market and promote trading Liquidity through innovative mechanisms to meet the needs of market participants in long and short positions. In addition, the mechanism of pre-market trading will also allow users to realize profits in the pre-market trading market without having to wait for the official listing of project Tokens, thereby locking in investment returns.

It is worth mentioning that not all points can be traded on Coral. Many social and transactional points in the market cannot accurately measure users' contributions to the protocol due to wash trading, and they are increasingly being scrutinized by anti-witchcraft and have low value. Only Token certificates with real assets as support, such as Eigenlayer points, can be traded and circulated on the Coral platform. The Coral platform will ensure that only Token certificates with actual value and Liquidity can be traded on its platform through strict review and screening mechanisms.

The core features of Coral can be summarized as follows:

1. Tokenization of Points: Coral integrates points from real assets, and the system automatically converts the points into tradable tokens, with each type of points corresponding to their respective corToken.
2. Lock-Release Mechanism: The points of tokenization are not fully circulated at the beginning. Coral adopts the 'Base + Acceleration' unlocking mechanism, allowing users to cash out their earnings in advance, and also accelerate the accumulation of earnings by adding Liquidity.
3. Native SWAP: Coral has built a native DEX - corSwap, which will provide users with a more Depth liquidity pool and a smooth and efficient trading experience.
4. Accelerated Weight Leasing Market (Coming Soon): Coral will build a convenient accelerated weight leasing market for special unlocking mechanisms, to meet the needs of borrowers with insufficient LP addition costs and tenants looking to fully utilize idle LP.
5. veToken Voting (Coming soon): Users lock CORL to obtain veCORL and participate in pool voting, further incentivizing user participation in adding Liquidity. At the same time, projects can bribe veCORL holders to vote for longer in Liquidity pools.

Specifically, the operating mechanism of Coral is as follows:

1. Users will stake the LST/LP Tokens obtained in the Decentralized Finance protocol to Coral;
2. Coral will convert the points corresponding to the LST/LP held by the user into corToken in a locked state;
3. Users can claim the locked corToken and start unlocking the corToken with the basic unlocking speed (Base).
4. Users can freely trade unlocked corToken on DEX; users who have not participated in the Decentralized Finance protocol can directly purchase corToken through DEX;
5. Users can add corToken Liquidity and stake the corresponding LP Token to obtain Boost Acceleration. Acceleration can speed up the unlocking speed of corToken;
6. Users' acceleration rights/LP can be rented to other users through the leasing market to earn additional income;
7. During the TGE of the project, Coral will calculate and settle the corToken in the hands of users, and distribute Tokens to users according to the project rules.

The Flywheel Effect of Coral

Coral combines the clever integration of accelerated unlocking mechanism and veToken design to build a powerful economic flywheel. This innovative design not only effectively empowers Token, but also brings continuous participation incentives to users, forming a self-driven, constantly accelerating rise cycle.

In the lock-release mechanism of Coral, the point tokenization corToken will not be unlocked at once. Users can choose to unlock corToken at the base rate, or accelerate the unlocking process by injecting funds into the Liquidity pool using the Boost mechanism.

This design not only motivates users to provide Liquidity to the corToken trading market, but also controls the potential huge selling pressure in the original points market, increasing users' instant income. In addition, by providing Liquidity, users can not only obtain the right to accelerated unlocking, but also receive CORL Tokens as rewards from the platform, bringing additional incentives to users. The accelerated right leasing service in the rental market has lowered the participation threshold for some users who do not want to provide Liquidity directly, while opening up additional income channels for users who have already provided Liquidity, effectively promoting the Liquidityrise of the entire Coral platform.

By integrating these incentives, Coral will attract users to deposit assets for the long term, thereby building a more optimal Depth of Liquidity pool. This type of Liquidity with Depth and a diversified incentive strategy will enable Coral to provide users with the most competitive token prices in the market, continuously attracting new users, and increasing Liquidity and volume.

For project parties, the Liquidity incentive mechanism and more stable Liquidity foundation built into Coral will also provide the lowest Liquidity acquisition cost for project parties. A better point price and a mechanism to lock in profits faster through contributions will attract users and studios to continue participating in the points market of projects on the Coral platform, and attract new users. The increase in TVL, frequent trading of actual asset support, and the expansion of user base will enhance the competitiveness of the project. This will continue to attract long higher quality project parties to issue tokenization points on the Coral platform, bringing new users and traffic.

In this process, CORL, as the project Token of Coral, captures the value of the protocol through clever utility design.

• Users can Lock-up Position CORL Token to obtain veCORL and influence the distribution of Liquidity rewards through voting.
• The project aims to attract more Liquidity rewards by bribing veCORL holders to increase the attractiveness of the Liquidity pool.
• veCORL holders receive rewards based on voting results and Liquidity incentive allocation. These rewards include Money Laundering, Interest, and incentives for other cooperative projects.

It can be foreseen that as the value of Coral gradually emerges, the demand for CORL will continue to increase through veCORL governance participation and as a medium for Boost revenue, which will drive its market value to rise.

Coral and other pre-market players

In the existing market, the projects dedicated to solving pre-market trading issues are not long, Whales Market and Pendle are representative projects in the existing solutions.

1. Whales Market

Whales Market has launched an innovative OTC Over-the-counter Trading market, the core of which is to ensure trading security through Collateral. Sellers lock assets as collateral to ensure that Tokens can be delivered to buyers when officially released. If the seller fails to fulfill the commitment, the Collateral will be automatically transferred to the buyer as compensation, eliminating the trust and security issues of traditional OTC markets.

Before the appearance of Whales Market, the trading of non-liquid assets such as encryption tokens, Airdrop distributions, and Allowlist often faced high risks due to the lack of formal markets. With the introduction of Whales Market, there is no need to rely on trust in third parties, providing a secure and transparent trading platform for both buyers and sellers, which is an important innovation in the pre-trading market.

Whales Market is essentially a double-sided P2P trading model, similar to options trading. This design is unfair to the buyer when the value of the Token experiences a big pump. This is because when the profit from the Token's big pump exceeds the cost of the collateral, the seller will choose to compensate the collateral instead of delivering the Token. Although the buyer will receive collateral as compensation when the seller defaults, they lose the potential for Token appreciation, the opportunity cost of collateral, and the time cost of waiting for Token TGE. For example, if a project like ZKsync delays its token release for a long time, the buyer's loss may be even more significant.

2. PENDLE

Pendle is a permissionless yield trading protocol where users can execute various yield management strategies. The core innovation of Pendle lies in the tokenization of yield. Firstly, Pendle wraps interest-bearing tokens into SY (Standardized Yield) tokens - after being wrapped (e.g., stETH → SY-stETH), the underlying interest-bearing tokens can be compatible with the Pendle AMM. Then, SY is further divided into two components: PT (Principal Token) and YT (Yield Token), both of which can be traded through Pendle's AMM.

Pendle's application in the pre-market has attracted particular attention, as it targets the scene of discount rate trading for yield. With the rise of the LRT concept, Pendle's TVL and Market Cap have experienced significant growth over the past few months. By customizing the integration of LRT, Pendle allows users to lock in the yield of ETH, participate in EigenLayer Airdrops, and participate in Airdrops related to the issuance of LRT through the Restaking protocol, bringing users opportunities for long-term yield diversification. In addition, Pendle's YT Token supports a strategy of 'leveraging points flow staking'. Users can exchange 1 interest-bearing Token (such as eETH) for a more long-term YT through Pendle's exchange function, accumulating more long-term points, similar to holding a higher quantity of interest-bearing Tokens. This mechanism directly reflects users' expectations for points in the price of YT. However, the Pendle model also presents potential challenges. The early market is prone to creating bubbles; as the maturity date approaches, the value of YT and its implied points will gradually depreciate to zero.

Looking back at Coral, as a pioneer in the pre-market tokenization solution, it effectively addresses many challenges in the existing market with its innovative solution, providing a more efficient and fair trading environment.

1. The innovative 'lock first, release later' mechanism dropped the throwing of points, which is more conducive to reducing the Fluctuation of points value, rather than the devaluation influenced by time.
2. Coral breaks through the limitations of traditional pre-market trading with its unique mechanism design, creating a win-win situation for users and projects. Unlike other projects that only allow users to participate in trading unilaterally, the Coral platform provides a two-way interactive environment: users can monetize and trade their points in advance on the Coral platform, enjoying liquidity and flexibility. At the same time, for projects, the point system will become an effective incentive tool. The active trading of tokenized points will provide a window for projects to showcase their value and potential, and this positive market feedback will also have a positive impact on the market performance of their tokens after the TGE.
3. Based on a unique mechanism, Coral will cover a more diverse user base, including interactive users, investors, speculators, and traders. This diversity is not only beneficial for increasing the platform's activity, but also for improving market Liquidity and trading Depth.
4. Coral will provide a fair trading platform that allows both buyers and sellers to participate in transactions without restrictions and jointly determine the market price of points to enhance market transparency and fairness.
5. Coral is not limited to providing Liquidity, but will also expand the usage scenarios of long points in the future. These extended values will provide users with more long-term profit opportunities and strategic choices.
6. By simplifying the trading process and removing the requirement for complex financial concepts and collateral assets, Coral enables ordinary users to easily participate in trading. This ease of use drops the entry barrier, attracting a wider user base.

Summary

Pre-market trading markets provide cryptocurrency investors with the opportunity to participate before the official issuance of project tokens with its unique trading methods. This model not only enriches the market ecosystem but also brings new investment strategies and expected management methods. However, this market also faces challenges such as insufficient liquidity, low trading transparency, and limited fund efficiency. In particular, the uncertainty and risks of off-chain assets make investors bear considerable risks while enjoying potential returns. The existence of these problems limits the further development and maturity of the pre-market trading market.

In such a market environment, Coral brings groundbreaking changes to the pre-market trading market with its innovative tokenization solution. Coral provides a secure and efficient trading environment that allows users to convert pre-market assets such as points into tokens and realize the value in a fair and transparent market in advance. In addition, various scenarios such as LP providing liquidity, accelerating power leasing market, and veCORL's voting governance also provide users with diversified value-added opportunities.

For the project party, Coral's role is far more than that. The lock-release mechanism locks users' Liquidity and attention on the platform, dropping the risk of the project to zero. With the continuous effect of the platform's positive flywheel, Coral will become a powerful traffic distribution platform, attracting new users, stimulating the rise of project TVL, and providing a strong environment for the rise of other development indicators. Through active trading of pre-market assets and positive market performance, Coral will also enhance the market attractiveness and influence of the project, and lay a solid foundation for the market performance of the project Token after TGE.

The mechanism design of Coral achieves a win-win situation among users, project parties, and the market, promoting the healthy development and continued prosperity of the pre-market trading market. Eureka Partners holds an optimistic outlook on the future development prospects of Coral and looks forward to this new asset and narrative playing an important role in the development of the pre-market trading market.

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