Boba Network To Airdrop Token To OMG Token Holders

November 12, 2021 10:00 AM
Crypto Story of the Day

Crypto Story of the Day




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Crypto Story of the Day

Over the past several weeks, OMG, the native token of the OMG network, has experienced steep backwardation in its futures curve. A basis trade, however, was inaccessible due to certain market dynamics.

OMG Network is an Ethereum layer-2 scaling solution. The OMG token currently has a market cap of USD 2.4B. In October, developers working on the Boba network, a ‘layer-2 Optimistic Rollup scaling solution that reduces gas fees, improve transaction throughput…’ among other claimed benefits. In late September, the team behind Boba Network revealed it would be airdropping its BOBA token to OMG token holders. 

The airdrop will be based on a timestamp of OMG holdings as of roughly 7 PM EST last night. BOBA tokens will be distributed to OMG holders at a 1-to-1 ratio. Since the airdrop announcement, OMG has added USD ~1.15B to its market cap, an ~89% increase. 

Over the past week, several major exchanges such as Binance and FTX announced they would facilitate the airdrop for users holding OMG on exchanges. Following the airdrop’s announcement in September, the OMG futures curve experienced aggressive backwardation - last night, the annualized spread associated with OMG futures-spot basis reached as low as -223%. 

The dynamic is being caused by demand for spot OMG to participate in the airdrop. Futures, on the other hand, offered exposure to OMG but without the benefits of the airdrop. At the same time, OMG lending rates have steadily risen over the past several weeks, reaching as much as ~230% annualized last night on Bitfinex. 

Furthermore, venues experienced challenges with shorting the token, while other venues experienced limitations in borrow/lend markets. This would have made a basis trade (shorting spot and going long a future) challenging due to the cost of borrowing OMG roughly equaling annualized yield from basis. As a result, the extreme backwardation was able to persist. Following 7 PM EST yesterday, OMG saw a sharp sell-off, as holding the token regarding the BOBA airdrop lost its value. 

As of this morning, OMG-1231 annualized pulled back to -10%. Binance’s OMG/USD pair achieved a 24-hour volume of just over USD 1B last night, while on FTX, OMG/USD volume for the same period reached USD 339M. 

Takeaway: OMG’s backwardation, and the associated yield, would have seemingly presented a lucrative opportunity. However, the exceptionally high OMG lending rates and other factors made policing this spread difficult. Ultimately, over the past several weeks, OMG acted as a derivative for another asset and exhibited dislocations that continue to characterize crypto markets.

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