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Money Laundry: The Rise of the Crypto Sock Market

No, we did not mean “stock market.” Source (Uniswap Twitter)

Crypto winter is over, and the pace of innovation in the blockchain space is accelerating. ICOs are out, and Decentralized Finance (DeFi) is in.

DeFi has grown exponentially over the last year, with many innovative financial products brought to market. One of the most exciting products is the Uniswap protocol.

What Is Uniswap?

Uniswap is a decentralized exchange that facilitates the exchange of tokens on the Ethereum blockchain. It does away with the concept of order books, replacing them with an automated market maker mechanism that incentivizes liquidity providers.

For more details, check out Cyrus Younessi’s excellent article on the topic.

Uniswap has been experiencing explosive growth. Source: defipulse.com

The Mechanics of SOCKS Trading

At the Fluidity Summit in NYC this past May 9, the Uniswap team announced limited edition, dynamically priced socks. These socks are represented on the Ethereum blockchain by redeemable ERC-20 tokens (SOCKS). Only 500 SOCKS tokens will ever exist.

Bonding curve governing SOCKS price. Source (Uniswap Twitter)

Every SOCKS sold increases the cost of the next, but they can be sold back into the liquidity pool at any time. Thus, a nascent marketplace for SOCKS has sprung up.

unisocks.exchange is changing the meaning of the term “wash trading”. Source(unisock.exchange)

Why Is This Cool?

SOCKS may be tongue-in-cheek, but it’s an early example of the use of bonding curves as a price discovery mechanism for physical goods. Any limited edition item (from sneakers to concert tickets) could be priced this way.

At FRST, we focus on personifying blockchain wallets and generating real-time trading signals off of these personas for high-frequency traders, hedge funds, prop trading shops and crypto researchers.

Trading activity on DEXs like Uniswap is visible on-chain, providing granular economic data ripe for analysis. Right up our alley!

Breaking Down the Best Sock Traders

We broke down the most performant sock traders by the following categories:

We looked at all wallets that have purchased SOCKS tokens from the Unisocks.Exchange and sold the same amount back to the exchange at any point in time. We wanted to analyze those wallets that have no current position in SOCKS and how well they performed. Our analysis found that there were some very performant SOCKS traders and others that did not trade so well.

The image below shows 44 wallet addresses that have both bought and sold SOCKS tokens since the launch:

Source: FRST
  1. 0xd1ccfbf0a0dc2a9ed8a496b07e81dd8ecd7cb00e
  2. 0x8e5d30f161ba3ebb09dc3c1f06515656af34baa1
  3. 0x02e5349a7c92e0384426a77db78232dd591cf76a
  4. 0x2b75ec32d07a5ac429b1d8b5209ab92049a06cca
  5. 0xe2f35b376461e7fdd2f2e45248e4c3cd9626a933
How about a hand for our most performant SOCK traders 👏 👏 👏

Purchased 1 SOCK for .31 ETH and had a -28% loss on their investment in SOCKS. Better luck next time, 0xf3f2…

In the image above, we have an obvious outlier. This wallet bought and sold 50 SOCK tokens. This wallet bought the 50 SOCK tokens for a total of ~7.12 ETH and sold all 50 for a total of ~12.61 ETH, bringing the wallet’s total ETH profit to ~5.49. This was a 77% ROI — Not bad.

The graph below shows the sales of all the 50 SOCK tokens and their ETH sale values.

Source: FRST

This address is very long SOCK tokens right now. They are currently holding 66 SOCK tokens at an average purchase price of ~0.25 ETH. This means that the wallet is currently up 0.04 ETH per SOCK token.

On May 16th, 2019, this address went very long SOCKS. This graph shows the dates that wallet 0x91d6e260a5965a3c33d5bc4bf4adcf96c449ed2e purchased these tokens.

Source: FRST

What other tokens are SOCKS traders using?

Source: FRST

And What Are They Doing With Those Tokens?

Force directed graph of SOCKS market maker activity. Source: FRST

The barriers to entry in the DeFi space are still relatively high, making SOCKS traders likely power users and early adopters. If they didn’t attend Fluidity Summit, they’re likely active on crypto Twitter.

The large amount of DAI activity relative to USDC suggests a preference for fully decentralized platforms. The following protocols are in common use among SOCKS traders:

Now What?

We’ve identified three distinct SOCKS trading strategies:

  • buy and hold
  • low volume, high return
  • high volume, low return (including front-running 🧐)

Keep an eye on SOCKS traders’ future activity to get a pulse on the latest developments in DeFi!

FRST’s platform creates trading signals off of personifications like the ones mentioned above. By following wallets that have proven to be successful traders, you can subscribe to all their activity and receive alerts as to when a performant trader begins to make trades. These signals can be embedded directly into your trading strategy.

FRST’s platform uses a unique, high-performance graph database that holds an always-ready archive of activities on blockchain networks and associates those activities with specific actors. This allows customers to craft and execute complex queries that cannot be answered by other systems.

Tell Me More About FRST

Gladly! The FRST platform was built with professional traders, data scientists, and blockchain researchers in mind. Our current customers include major digital asset exchanges, hedge funds with dedicated crypto desks, venture capital funds, audit/compliance/KYC functions within institutions, and university and government research efforts in the blockchain space.

If you’re interested in getting in touch with us or learning more about our team, please visit frst.com or email info@frst.com. We’re a friendly group of motivated folks, and we’re always looking to add more rock stars to our team and community.

Written by Pat Doyle & Will Price.

Pat & Will are Data Scientists at FRST.

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Pat Doyle

Building actionable blockchain analytics. Co-Founder @ Genesis Volatility