Over the last 7 days, the price of Buffer Finance (IBFR), a gamified options trading platform that “allows anyone around the world to buy and settle options on multiple assets directly against a liquidity pool,” and which sounds about as suss as you can get (leveraging and a little known crypto, what on earth could go wrong…), has nevertheless increased to as much as 16 times what its value was at the beginning of the week, setting and resetting all-time highs over the course of an extremely steep 4-day uptrend.
From a seemingly solid price floor that had stayed under $0.14 AUD since early November, the token’s price suddenly spiked on December 1, before the rapid ascent began the next day which would go on to eventually peak at around $1.13 AUD on December 4. But what actually is the Buffer Finance token? And why is its price soaring?
Launched in September, Buffer Finance says it is a completely decentralised options trading platform that allows users to purchase cryptocurrency options without requiring a reciprocal seller at the opposite end of the trade. This is facilitated through a peer-to-pool mechanism that utilises a liquidity pool in place of options sellers, utilising smart contracts to self-manage it through Binance Smart Chain.
Buffer Finance joined Twitter in May 2021.
For those unfamiliar, options involve contracts that give their purchaser the right to buy a specific asset (in this case a certain cryptocurrency) at a previously agreed-upon price within a defined period of time. Buffer Finance offers a unique platform where purchasers buy options not from a seller, but from the blockchain’s reliably self-governing fund.
To provide an oversimplified example of a traditional options transaction, if someone strongly suspects that Tesla’s price will increase by a specific point in the future, they could purchase a Tesla “call,” handing the call seller a fee to reserve the right to buy 1 share for $1,000, regardless of its real-time price, within the next month. The human seller of the “call” is thus betting on the purchaser’s prediction being wrong, as they will be obligated to sell them 1 Tesla share for $1,000, even if its market value has increased to $2,000 when the call purchaser exercises his right.
Call buyers, therefore, take on time risk and a fee (usually seller-determined) in exchange for the benefit of being temporarily entitled to an asset’s gains without needing to possess the asset itself. So, despite Buffer Finance’s apparent usefulness and innovation, why was the token only in the past week suddenly perceived to be more valuable, as seemingly evident in its huge climb in price?
There are no certain answers. And the fact that Buffer Finance has been promoted in Reddit’s Crypto Moon Shots community is arguably a huge red flag, with the page being known for being rampant with pump and dumps. It has also been spruiked in the proud “degenerate” community of crypto gamblers Satochi Street Bets. There is also some (arguably) suspiciously breathless praise on Twitter (though you could level the same accusation at many crypto coins).
Though there is not enough evidence yet to know for certain if Buffer Finance is legitimate or a scam, it seems probable there will be big winners in the burgeoning crypto options space, with Goldman Sachs seeing crypto options markets as the next big step for institutional adoption, according to Coindesk. Perhaps this is part of the reason some people have gambled on Buffer Finance.
At a CoinDesk panel discussion on December the 2nd, Goldman’s global head of crypto trading Andrei Kazantsev stated: “The next big step that we are envisioning is the development of [cryptocurrency] options markets,” suggesting that crypto derivatives are in the “infancy of product scope.”
He also noted that the demand for options platforms may be underpinned by equity funds who could benefit from being able to “hedge for the longer term, and to know the downside on the hedge they can have. That’s where options become really important.”
Buffer’s price went vertical on the same day. Speculative investors channelled towards IBFR through Kazantsev’s comments would likely have been assured by the features said to be touted by the token: entitlement to an ongoing share in revenue, the elimination of liquidity risk, the ability to customise options and perhaps most interestingly, access to a gamified version of options trading.
In line with Buffer Finance’s mission to make options trading simple and efficient for all, this gamified form of trading is supposedly as simple as guessing whether an asset will go up or down and by what time.
Although it’s impossible for anyone to accurately say how Buffer Finance will fare in the future, it’d be fair to suggest, if it’s legit, then it could be well positioned for a solid start, if only because it happened to find itself in the right place at the right (read: early) time. What is make or break though, will be whether the technology really works and attracts a large audience, and continues to be innovated, without being overtaken by the numerous competitors that are liable to crop up in any profitable space/market.
Always do your own research before investing in any crypto. Not only could you easily fall victim to some legit looking (but ultimately scammy) pump and dumps (as DMARGE found out the hard way) but even if you hit the jackpot and time a little known coin right, just as it shoots up, as thousands of Squid Game token investors found out recently, you could still get stiffed (in that particular case a piece of code prevented people from cashing out and the developers ran away with a sh*t load of money).
Disclaimer: This article is intended for informational purposes only. This is not financial advice. Never invest more money than you can afford to lose into any crypto.