The Deadly Trap Behind Profitable IPOs: How Retail Investors Can Use a "Chain Trap" to Fight Back Against Market Makers' Sniping?

With the issuance of new-generation cryptocurrencies such as Monad, MMT, MegaETH, and others, a large number of retail investors participating in new coin offerings face a common dilemma: how to convert high paper profits into real gains?

A typical hedging strategy is to take spot positions first and then open equivalent short positions in the derivatives market to lock in profits. However, this strategy often becomes a “trap” for retail investors with new tokens. Due to poor liquidity in new coin contracts and the presence of large amounts of unliquified chips in the market, “malicious actors” can exploit high leverage, high funding rates, and precise price manipulations to force close retail investors’ short positions, reducing their profits to zero. For retail investors lacking bargaining power and OTC channels, this is almost an unsolvable game.

In the face of market makers’ sniping, retail investors must abandon traditional 100% precise hedging and instead adopt diversified, low-leverage defensive strategies: (from a profit management mindset to a risk management mindset)

Cross-exchange hedging: Open a short position on a highly liquid exchange (as the main locking position), while simultaneously opening a long position on a less liquid exchange (as a cushion against liquidation). This “cross-market hedging” greatly increases the cost and difficulty for market makers to snipe, while also allowing arbitrage through funding rate differences between exchanges.

In the highly volatile environment of new tokens, any leverage-related strategy carries risks. The ultimate victory for retail investors lies in adopting multiple defensive measures to transform liquidation risk from an “inevitable event” into a “cost event,” until they can safely exit the market.

1. The Reality Dilemma of Retail Newbies - No Hedging Means No Profit, Hedging Risks Sniping

In actual new coin scenarios, retail investors face two main “timing” dilemmas:

1. Futures Hedging (Pre-Launch Hedging): Retail investors receive futures tokens or locked share certificates before launch, not the spot. At this point, the market already has contracts (or IOU certificates), but the spot has not yet circulated.
2. Spot Restrictions on Hedging (Post-Launch Restrictions): Although the spot has entered wallets, due to withdrawal/transfer time restrictions, extremely poor market liquidity, or exchange system congestion, immediate and efficient selling is impossible.

Let’s recall something: as early as October 2023, Binance had a similar spot pre-market product for spot hedging, allowing users to hedge pre-launch, but it was paused—possibly due to launchpool issues or poor data (the first target was Scroll). This product could have effectively solved pre-market hedging problems, which is a pity.

Therefore, a market version emerges: futures hedging strategy—that is, traders expect to receive spot holdings and open a short position in derivatives at a price higher than expected to lock in profits.

Remember: the purpose of hedging is to lock in gains, but the key is to manage risk; if necessary, sacrifice some profits to ensure position safety.

# Key Point of Hedging: Open Short Positions at High-Profit Prices

For example, if your ICO price was 0.1 and the futures market price is 1, a 10x increase, then the risk-reward ratio of taking a short position is relatively high: first, it locks in a 9x return; second, the cost for manipulators to push prices higher is also high.

However, in practice, many blindly open short positions for hedging without considering entry prices (assuming expected profit of 20%, which might be unnecessary).

Pumping a token from a FDV of 1 billion to 1.5 billion is much harder than from 500 million to 1 billion, even though both are a 500 million increase in absolute value.

Then the question arises: since current market liquidity is poor, even opening short positions might still be sniped. What should we do?

2. Upgraded Hedging Strategy - Chain Hedging

Setting aside complex calculations of the target’s beta and alpha, or hedging against correlations with other mainstream coins, I propose a relatively easy-to-understand “post-hedging re-hedging” (chain hedging?!) strategy.

In short, add an additional hedge on top of the existing hedge—when opening a short hedge, also open a long position to prevent the main short position from being forcibly liquidated. Sacrifice some gains to gain a safety margin.

Note: It can’t 100% prevent liquidation, but it can reduce the risk of being sniped by specific market makers, and also enable arbitrage through funding rate differences (if certain conditions are met):

1. Properly set stop-loss and take-profit points;
2. Open positions at cost-effective prices;
3. Hedging is a strategy, not a belief; there’s no need to follow blindly until the end.

Where exactly to open short and long positions?

3. Re-hedging based on liquidity differences

Core Idea: Use liquidity differences for position hedging

On exchanges with good liquidity and more stable pre-market mechanisms, open short positions—taking advantage of their depth, requiring market makers to invest larger capital to push the stop-loss orders. This greatly increases sniping costs, serving as the main profit lock-in point.

On exchanges with poor liquidity and high volatility, open long positions to hedge the short position A. If A is violently pushed up, B’s long position will follow and profit, offsetting A’s losses. Poor liquidity exchanges are more prone to large price surges. If the prices of A and B move synchronously, B’s longs can quickly profit, compensating any potential losses from A’s shorts.

4. Re-hedging Calculation Example

Suppose 10,000 ABC spot holdings, with ABC valued at $1 each.

• Short position: Exchange A (Stable), $10,000
• Long position: Exchange B (Low liquidity), $3,300 (e.g., 1/3 of the total, derivable from expected returns)
• Spot: 10,000 ABC valued at $10,000

Scenario A. Price surges (Market Maker Pump)

• ABC spot: value increases.
• Exchange A short: unrealized losses grow, but due to good liquidity, liquidation difficulty remains higher than the previous plan.
• Exchange B long: value surges, offsetting A’s unrealized losses, keeping overall position relatively stable. (Set proper take-profit and stop-loss levels)

Scenario B. Price drops sharply (Market Sell-off)

• ABC spot: value decreases.
• Exchange A short: unrealized profits increase.
• Exchange B long: unrealized losses increase.

Since the exposure of the A exchange short position is $10,000, larger than B’s $3,300 long position, market drops mean A’s profits outweigh B’s losses, resulting in net profit. The decline in spot price is hedged by the short position’s gains. (This strategy assumes the gains from hedging are sufficient)

5. Core of the Strategy: Sacrifice profits to reduce risk

The brilliance of this strategy lies in: placing the most dangerous position (long position) on the less liquid exchange, and the most critical position to protect (short position) on the relatively safer exchange.

If a market maker intends to push the short position on A to liquidation, they must:

1. Invest大量资金攻克A交易所的深厚流动性；
2. Their push-up in price will simultaneously profit the long positions on B exchange.

This makes sniping significantly more difficult and costly, rendering the operation unprofitable for the market maker.

By leveraging market structure (liquidity differences) for defense, and utilizing funding rate differences for additional gains (if applicable).

Finally, some serious but probably nonsense takeaways:

1. If expected returns are poor, better to sleep and do nothing;
2. After reading this, you might think the mechanism is complicated—well, that’s right, so don’t participate blindly;
3. Smart traders may realize that the “one short one long” creates a “synthetic position,” and understanding this principle is more important than executing trades;
4. The main purpose of this article is to tell you: don’t operate blindly, don’t participate recklessly. Just observe. If you really don’t know what to do, buy some BTC.