The parasitic strategy describes a worst-case scenario in which a loan + call option market maker extracts value from the project rather than providing genuine liquidity. It typically unfolds in stages:
- Post-TGE pop: The market maker provides minimal liquidity on the offer side of the pre-market order book, allowing a small amount of organic buy-side demand to drive an exaggerated price increase.
- Aggressive short selling: The market maker aggressively sells loaned tokens into the organic bid-side liquidity at the elevated FDV, accumulating a large stablecoin balance. This sell pressure causes market impact and drives price correction.
- Post-launch calm: Launch excitement fades, resulting in lower volume, reduced liquidity, and declining price volatility. The market maker shifts from taker-side activity to majority maker strategies.
- Diminished demand meets inflation: Token emissions shift the supply curve outward while weak demand drivers fail to counteract. The market maker continues selling tokens as a taker, further suppressing price.
- Down-only price action erodes community: Persistent price depreciation since launch creates a toxic community environment. Bid-side liquidity becomes almost non-existent as large bag holders exit at any available price.
- Repurchase and return: The market maker repurchases tokens at heavily discounted prices to cover the short position, returns the full token loan without exercising the call options, and profits the spread between sale and repurchase prices.
This pattern is most likely when the token lacks a liquid perpetual futures market (eliminating gamma scalping as a profit source), when strike prices are unachievable, or when the project has weak post-TGE demand. In the unlikely event that price appreciates despite the short selling, the market maker can exercise the call option to purchase tokens at the strike price, cover the short position, and still capture the spread — making the strategy profitable in both directions for the market maker, at the project's expense.
