Polkadot and Filecoin futures are everywhere. What happened to the former king project IOU?

Starting in 2020, the most anticipated star projects are undoubtedly Polkadot and Filecoin. There are already at least 10 exchanges that have launched DOT's IOU futures. With the launch of the IPFS testnet, miners are also gearing up.

IOU stands for "I owe you," which refers to futures contracts issued by exchanges in the form of temporary tokens that are not yet listed. These contracts promise to deliver real tokens once the project goes live. In short, IOUs are like promissory notes guaranteed by the reputation of the exchange. Before the actual tokens go live, IOUs can only be traded within the exchange, typically without the ability to deposit or withdraw and lacking trading depth. Therefore, whether it's the short-term price of private placements skyrocketing up to hundreds of times or the seemingly appealing price differences between IOUs on different exchanges, they do not carry strong reference significance.

Throughout the project development process, the importance of the crypto community is self-evident. The crypto community consists of developers, investment institutions, analysts, media, as well as ordinary individuals who are interested in technology, collectively forming the foundation of the future crypto ecosystem. It is undeniable that community members holding project tokens are more likely to pay attention to and contribute to the project due to incentives.

Due to legal reasons, many individual investors often find it difficult to become accredited investors in the early stages. Enthusiasts of many high-quality projects hope to recharge their faith at an appropriate price but are unable to do so as secondary market listings are uncertain. Moreover, once the secondary market goes live, token prices are subject to multiple factors, and speculative funds entering the market may lead to significant price fluctuations, deviating from the expected valuation of the project. As a result, many people choose to privately trade investment shares on the OTC market, where the trading price is based on consensus reached by considering factors such as the primary fundraising price, lock-up discounts, current market conditions, and delivery risks. Similarly, the exchange IOU is also a product born out of demand.

Looking back at some projects that issued IOUs on exchanges and officially launched on the secondary market, we hope to provide some insights for investors interested in purchasing futures.

Algorand ALGO

In April 2019, Bgogo announced the sale of Algorand token ALGO futures through an IEO, claiming that the tokens were from its early investors and priced at 5 cents, which was the same as the early private sale price, making it a fair price for investors. However, the Algorand team quickly issued a statement denying any token sales.

At the same time, Bgogo stated that early Algorand investors willing to transfer their quotas were warned by the project team not to transfer the currently locked ALGO tokens; otherwise, it would be considered a default and they would lose their tokens. However, Bgogo hoped to continue the IEO and, within a month of Algorand's mainnet launch, directly fund the purchase of ALGO tokens from the secondary market. ALGO tokens would no longer come directly from early Algorand project investors.

Project teams mostly maintain a vague attitude towards exchanges' IOU sales, with strong condemnation and threats of loss of tokens to early investors, as seen in the case of Algorand, being relatively rare. Through Algorand's subsequent actions, we can reasonably speculate that one of the reasons for the strong reaction from the project team was that Algorand was likely preparing for its own token sale, which was officially launched in June 2019 through a Dutch auction, a game testing market psychology. The initial Dutch auction ultimately traded 60 million tokens for $2.4 each. It is conceivable that if ALGO futures with an initial price of $0.05 had entered the market early, it would have disrupted Algorand's token sale plans.

Although Bgogo initially insisted on issuing ALGO and counterattacked Algorand's intervention by comparing the issuance to trading Bitcoin on an exchange without Satoshi Nakamoto's permission, for various reasons, the IEO project was quietly replaced, and the ALGO futures issuance ultimately failed.

Blockstack STX

As early as September 2018, the Tokok exchange had already listed Blockstack's STX futures against ETH. On November 17, 2018, as STX tokens for early investors began to be distributed, Tokok announced the proportional distribution of STX/ETH subscriptions, with price data becoming more reasonable. On April 16, 2019, Tokok announced the opening of withdrawals and settlements for unlocked STX, despite the limited supply and relatively high withdrawal fees. On July 11, 2019, Blockstack became the first project to pass SEC RegA+ compliance and announced the token issuance price: $0.12 for early token coupon holders and $0.3 for high-net-worth investors, both linearly unlocked within two years. On October 23, 2019, STX announced listings on Binance and Hashkey Pro exchanges. The futures prices for STX also clearly and promptly reflected these positive developments.

STX futures on Tokok traded for up to a year before officially launching on the secondary market. Judging from the rationality of the prices and delivery conditions, at least within a small scope, the historical mission of IOUs was successfully carried out. Early STX futures were generally priced lower than the final round public sale price of $0.3 and had no lock-up restrictions, providing even greater profit opportunities. This was partly due to Tokok enabling limited STX withdrawals, proving the exchange's ability to honor real STX. Additionally, the transparency of Blockstack's private and public sale price data and the traceable formation of investors' psychological price points led to a certain price consensus in the market before the official launch of the secondary market.

Orchid Protocol OXT

OXT futures for the Orchid Protocol token were listed on Tokok on November 22, with prices reaching $13-14. Within just a month, on December 14, the OXT spot market was officially launched. This former top-tier project's quiet listing seemed somewhat lackluster, with the 13-14 dollar OXT futures lingering for twenty days like a solo performance on the exchange.

Similar to OXT, there were also futures for tokens such as CELR and ATOM on the Tokok exchange, all announced for sale a month or even a shorter time before the tokens officially launched on the secondary market, possibly indicating a rush to capitalize on the rumors of listings. Due to the short trading period and low attention, these listings failed to reflect the tokens' fair value.

There are many doubts in the market about exchanges issuing IOUs.

Projects listed with IOUs are well-known star products, while the exchanges issuing IOUs are often lesser-known, smaller exchanges in need of traffic, which may lead to criticisms of riding on the project's popularity. Comparing the listing of ALGO futures on Bgogo with the listing of Bitcoin is clearly inappropriate, as Bitcoin is a real asset within the exchange, whereas the biggest concern with issuing IOUs is how the exchange will fulfill its promises.

According to information revealed in exchanges' public statements, the source of IOU tokens may be that the entity behind the exchange has quotas of the currency or has reached internal cooperation agreements with some early investors. These early investors are willing to sell a portion of their quotas, and the exchange provides a matching platform to "pre-sell" the quotas that early investors will receive in the future. In other words, early investors purchase token futures from the project's official source, and these investors then sell these futures on the exchange in the form of futures, locking in profits in advance and transferring risks.

Exchanges often remain ambiguous about the source of futures, and another possibility is that the exchange does not have, or at least does not have sufficient, token quotas. After the project tokens go live, to ensure token delivery, the exchange will purchase tokens from the secondary market to distribute to IOU investors. There is a certain price risk for the exchange, but if the project generates enough attention, the traffic and income brought to the exchange can be considerable. If the futures do not have support from the project team or their tokens, we can only rely on the exchange's integrity.

When purchasing futures in the form of IOUs from exchanges, it is essentially "futures of futures," and any link in the process from the project team to early investors, exchanges, and futures buyers may encounter delivery issues. Undoubtedly, investors face higher risks compared to spot trading in the secondary market. There have been cases of failed IOU futures issuances in the past for well-known projects, but it could also present a good entry opportunity for investors. We do not provide any investment advice here and encourage everyone to carefully evaluate factors such as time costs, project progress, early investor prices, and discern exchange credibility before making decisions. Understanding these factors, which are more important than "Can I buy IOUs," can help you choose the investment method that suits you.

This article is from our partner LONGHASH

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