The Void Trading of friend.tech: "Toxic Innovation" that Twists the Price Timeline

Author: Loopy Lu, OdailyNews

The growth potential of a financial product/asset is often determined by market capacity. This market capacity includes both the scale of funds and the number of investors. From this perspective, the future of friend.tech does not look optimistic.

Taking the example of illiquid NFTs, a "standard" PFP series has an "asset" count of 10,000. Theoretically, such an NFT Collection can accommodate 10,000 investors. To improve the poor liquidity, the industry has seen the emergence of various NFTFi products such as fragmentation, lending, and leasing.

Back to friend.tech, how many investors can a "user" share accommodate?

Taking Racer, the top asset by market cap, as an example, Racer currently has a market cap of 773 ETH. Dune data shows that Racer's individual shares currently total only 232, with holders as low as 138 addresses; there have been a total of 960 transactions, including 596 buys and 364 sells.

Notice that even though it is highly discussed within the community, the trading of the strongest asset in friend.tech remains very infrequent. This means that with very few trading actions, the market cap can soar to a relatively high position (compared to market participation enthusiasm).

Why is this the case?

The Evolution of Matching: Disempowering the Counterparty Role

Here, we need to re-understand the mechanism design of friend.tech.

In traditional trading venues like CEX, matching transactions through an order book is the core pricing mechanism. Buyers and sellers continuously place bids, and when both parties reach an agreement, a transaction occurs. The transaction price is immediately displayed by the trading platform, which is the instantaneous price that balances the expectations of both parties. However, in friend.tech, this continuous transaction process does not exist.

The above image shows a typical buy transaction in friend.tech. We can see that the 2.83 ETH used to purchase shares, after deducting two 5% commissions, is entirely sent to a contract address ending in "a4d4". (By the way, the ability to exchange money directly without using NFTs as intermediaries is also a significant innovation of this project. Additionally, eliminating minting saves gas fees.)

In a sell transaction, we can see that the contract address ending in "a4d4" directly transfers the proceeds to the seller after deducting the two commissions.

The contract ending in "a4d4" is named Friend tech Shares V1, and it is used to store the ETH paid by users when buying shares. Currently, there are 3,434 ETH in the contract.

In simple terms, in friend.tech, buyers and sellers never engage in direct transactions.

Yes, this is the magical aspect of friend.tech. I even think this is a "great invention" comparable to AMM.

Do you remember the shock that AMM brought to traders when it first emerged? It eliminated the drawback of requiring the order book to execute transactions in real-time, allowing buyers and sellers to exist independently at the moment of transaction.

Real-time transactions place a huge demand on liquidity, making it difficult for a niche asset in the nascent crypto market to maintain sufficient and high-frequency transactions 24/7.

AMM made LPs the eternally existing "sellers/buyers." As long as LPs are present, buyers/sellers can transact at any time.

Friend.tech is even more radical than AMM; it has eliminated LPs altogether. Without the role of LP to "pretend" to be the counterparty, transaction initiators can ignore liquidity and transact at any time.

Since friend.tech has never released a white paper and has not named its mechanism, for convenience in the following text, I will refer to its trading mechanism as "Void Trading."

Void Trading: The "Great Innovation" that Manipulates the Price Timeline

Odaily Planet Daily previously introduced its pricing mechanism in the article "Friend.tech Rises, How Are Personal Stocks Priced?." In summary, the price of friend.tech is determined by the supply of the trading items— the more personal shares in circulation, the higher the price.

The horizontal axis represents the number of shares, and the vertical axis represents the transaction price.

Intuitively, this mechanism seems reasonable— the stronger the buying interest, the more buyers there are, leading to more shares being created, and thus the price rises— scarcity drives up the price.

But is it really like that?

Let's revisit traditional matched trading. In matched trading, transactions are executed in real-time. When you buy an asset for $1,000, there must be someone willing to sell it for $1,000 at the same time. When market expectations rise, due to "supply not meeting demand," other traders will bid $1,001 to buy. Ultimately, a transaction price of $1,001 is reached.

No one "sets the price" of this trading item at $1,001. The market spontaneously transacts at $1,001, and the trading platform simply displays it— that's all.

AMM is similar; LPs merely serve as the eternally existing counterparties.

In matched trading and AMM, the price has already occurred; it is in the "past tense."

In "Void Trading," however, there are explicit "pricing" rules, and the price is clearly in the "future tense"— I know exactly what the next buy (or sell) price will be.

Under the Mechanism Trap, Does "Trading" Actually Exist?

What problems does "Void Trading" bring? It's hard to evaluate.

My personal subjective value judgment is that this mechanism greatly distorts the real market.

The buying and selling of shares do not seem to fall under traditional "trading."

Because the price is a "future tense" rather than a "past tense." Share trading resembles a game with returns— within a defined rule framework, priced by rules, not spontaneously by the market, and without a counterparty. The market's script has already been written in advance, and economic rules cannot freely price here.

In fact, this seems closer to a form of gambling?

"Void Trading" locks in the price fluctuations in advance through explicit pricing rules. This leads to the following issues:

• Unable to achieve fully "fair" pricing— there are no counterparties in the market, and there is no need to reach a consensus with others.
• No "effective" price— the price is a "future tense" rather than a "past tense," unable to represent the collective force formed by buyers and sellers in the market.
• Prices are "full of plans" yet change abruptly— if 1 ETH cannot be transacted, you cannot quote 1.01 ETH, making the price stepwise rather than linear.

Taking two adjacent buy transactions as an example, the second transaction shows an increase of 0.99% compared to the previous one.

In terms we are more familiar with— this indicates a severe lack of depth.

Infinite Liquidity and Soaring Market Cap: Is It a Deliberate Design by the Project Team?

In the NFT trading market, taking MAYC as an example, within a 1% increase range of the floor price (4.51 ETH), you can buy 65 pieces. The same goes for selling; within a 1% decrease range, there are even up to 90 bids available for transaction on Blur.

In friend.tech, to drive a 1% increase/decrease, you only need to initiate one buy transaction.

Such poor depth means it is more favorable for market making and manipulation.

Whether this "Void Trading" mechanism is good or bad may depend on your perspective.

On the positive side, this artificially "priced" mechanism theoretically gives friend.tech infinite liquidity. As long as you hold ETH or personal shares, users can transact under any market conditions.

When AMM replaced traditional market makers with LPs, people were amazed at how efficient market making could be. In friend.tech, even the "50/50" ratio in LPs has been discarded, with all funds becoming liquidity.

However, when comparing data with traditional ERC-20s, you will discover the terrifying aspects of Void Trading.

Do you remember the contract address ending in "a4d4" mentioned earlier? This address is used to store all liquidity funds, approximately 3,434 ETH. Given that all these funds are ETH liquidity (without a "50/50" design), it can be equated to a TVL of 6,868 ETH.

Generally speaking, for an on-chain protocol to support a larger market cap, it needs to absorb a larger asset scale (i.e., TVL). The ability of a protocol to absorb assets is often seen as an important factor in its valuation.

Currently, the total market cap of friend.tech's personal shares is 10,000 ETH. The ratio of friend.tech's market cap to TVL is as high as 1.45, indicating extremely frightening capital efficiency.

Data from DeFiLlama shows that this figure is far higher than that of other on-chain protocols. This somewhat represents that its current market cap is inflated.

However, the reason for the soaring market cap is intriguing— is it due to investors' optimism about this project leading to the market cap surge, or is it a result of the artificially designed mechanism causing "market manipulation"?

Insufficient Vertical Depth, Horizontal Intersections

From the perspective of each personal share, friend.tech has unprecedentedly weakened the market space for Ponzi schemes.

The top trading assets can only accommodate a few hundred holders simultaneously. Once the number of holders starts to grow rapidly, the artificially designed price curve will cause the trading items to become prohibitively expensive, alienating most investors. However, trading items lacking a broad base of participants find it difficult to form a consensus.

On the other hand, it turns each trading item into a small Ponzi. Although the growth prospects of a single trading item market are limited, friend.tech can provide you with countless similar trading items.

A new trading mechanism has emerged that offers maximum efficiency in liquidity but is also easily manipulable in price. What impact will such an innovation have on the industry?

Perhaps years later, a certain "great" Ponzi project will emerge: it will have infinite liquidity, horizontally expand its prosperity, and attract everyone into its carefully designed trap. And all of this originates from the inspiration of a brand new "Void Trading" mechanism…

Will the innovative mechanism brought by friend.tech open up the market like AMM, or will it lead the industry into a darker abyss? The gears of fate have already begun to turn.