I only really figured this out about two days before the airdrop, and I didn’t trade it — but it’ll be useful for thinking about similar situations in the future.
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Inspired by a @robertmartin88 tweet, my rough framework for understanding the OMG/BOBA airdrop was that OMG behaved like a stock going ex-dividend, ie it would drop by the value of BOBA just after the snapshot was taken for the airdrop.
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Two important differences between OMG and (FTX) perpetuals on OMG — 1. the spot qualified you for the airdrop and the perps didn’t 2. The perps pay funding and the spot doesn’t. With a bit of backward induction and no-arbitrage reasoning you can get an implied value for BOBA.
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One hour before the airdrop the perp should trade close to the expected post-airdrop value of OMG. Say OMG is at 18 and the expect value of BOBA is 5, then the perps should trade around 13.
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But at such a huge discount you would get a big funding payment for being long — so the perps would actually trade a little higher to account for that, say 13.25 (you can solve to get an exact value)
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Two hours before airdrop you have a similar situation, except you would get two hours worth of funding payments, so the perps trade a little higher, say 13.49 (the next funding payment isn’t as much as the one in the final hour)
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You can keep going backwards to get the value that perps would trade at N hours before the airdrop, given the OMG spot price and the expected value of the BOBA token.
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All this is conditional on knowing the expected value of BOBA which you obviously don’t know — but by observing current spot and perp prices you can get the market implied value by finding the number which would give the current perp price, under the above backward induction.
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The predicted behaviour from this model is 1. the spot looks like a random walk, and trades down as soon as the airdrop snapshot happens 2. the perp trades at a discount to spot, which widens as you get closer to the airdrop snapshot
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3. funding rates get really negative just before the snapshot, and the discount widens very rapidly over time
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Were there any interesting trades to do? If you disagreed with the market implied value of BOBA then you could trade that with a long spot/short perp position (paying funding in order to be eligible for the airdrop)
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There are also other OMG derivatives (eg other exchanges, dates futures) which had similar no-arbitrage implied valuations, and you could look for deviations from fair value there. Fin.
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This is the original tweet!https://twitter.com/robertmartin88/status/1459465182854455296 …
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