Synthetic SpaceX: trading a press release

Five venues launched SpaceX perps days before the IPO, on institutional-looking terms. So who actually ends up holding them?

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Deep Dive: Synthetic SpaceX — Trading a Press Release

On June 4, Coinbase opened a market where eligible traders across much of the world — though notably not the United States — can get price exposure to SpaceX with a few taps on their phone. No accreditation check. No meaningful minimum. No broker, no SPV, no lockup. And according to the venue’s published materials, no underlying stock.

Just a USDC-settled perpetual futures contract that trades 24/7 with up to 5x leverage, launched eight days before SpaceX's IPO — the largest in history, which raised roughly $75 billion at a valuation approaching $1.8 trillion.

Kraken listed its own SpaceX perp within days. Bybit, Binance, and OKX followed. In under a week, five venues, with more expected.

Then the cracks showed.

When SpaceX's S-1 disclosed the company's share count, the exchanges couldn't agree on what their contracts were worth. Some venues rebased their perps to adjust for the dilution. Others didn't. For a stretch, the same "SpaceX" reportedly traded as much as 10% apart depending on which app you opened.

I've spent my career in and around electronic trading and private markets, and people keep asking what I think.

It's innovative. But it carries material structural risks.

The terms look institutional. Because of how the products actually work, the people who end up holding them are mostly everybody else. They try to solve a real access and liquidity problem. But like many attempts before them, in their current form, they may expose retail users to risks that are difficult to understand or price.

Here's what to understand before you tap buy: you are not investing in a company. You're trading a press release.

For market participants evaluating long or short exposure, the structural issues are important. Read on — we break down the biggest structural flaws.

To unpack this, we need three things: what a perp is, a brief tour of the pre-IPO market, and what happens when you bolt the first onto the second.

What is a perp?

A perpetual future is a derivative contract with no expiration date. There are zero-day options. This is an infinite-day option.

You post margin, your position is marked to market continuously, and funding payments are debited from your balance automatically. If your account equity falls below the maintenance threshold, the exchange liquidates you automatically. There's a lot there, and all of it matters.

Because the contract never expires, something has to keep its price tethered to reality. That something is the funding rate: a periodic payment exchanged between longs and shorts. When the contract trades above the reference index, longs pay shorts. When it trades below, shorts pay longs — all in an effort to keep the contract in line with the index. For an investor, that cost can be material, and it can compound against you.

To Coinbase's credit, they break down funding rates clearly and disclose the risks. Their example: a long position with "a 0.05% positive funding rate applied every hour" pays "1.2% in funding fees… over a 24-hour period."

That's 1.2% in 24 hours. Not over the life of the trade. Not annually.

1.2% per day.

In plain terms: buy a SpaceX perp, and if the price rises, the funding rate is debited straight out of your balance and into the pockets of the traders on the other side. You can be right about direction and still lose money to fees.

Born on crypto exchanges in 2016, this structure now dominates crypto derivatives. It's elegant financial engineering. The question is who the engineering serves — the user, or the venue?

Either way, everything depends on the integrity of the reference index. In private markets, that hasn't been solved — certainly not to the point where money should be auto-debited and leveraged positions liquidated against it.

A pre-IPO perp conveys no shares, no claim on the company, no cap-table position, no interest in an SPV, no conversion right at IPO. It is a cash-settled bet against other traders. When SpaceX went public, the pre-IPO perp automatically became a regular SpaceX perp. It never becomes a share.

One clever twist: because a company's fully diluted share count isn't public, Coinbase quotes the contract on total valuation. A price of 1,735 implies a $1.735 trillion valuation. Creative — but as an economic instrument it creates a mismatch I'll come back to, because it's one of the most meaningful and actively debated flaws in the product.

How the pre-IPO market currently works

The pre-IPO market exists for a structural reason, not a speculative one. Companies are staying private longer than ever. Depending on the dataset, the median time from first venture funding to IPO now runs from roughly eight years to more than a decade (Jay Ritter, University of Florida; Statista) — well beyond the five-to-seven-year horizon early employees once counted on. There are more than 1,200 unicorns today, by CB Insights' count, versus 39 in 2013.

An enormous share of wealth creation now happens before a company ever lists, before most investors can participate. Employees and early investors who once saw liquidity in five to seven years now hold illiquid stock for over a decade. That's precisely why secondary volumes keep setting records, year after year.

Access comes through one of three high-friction paths: a primary round gated to institutions and insiders, an occasional company-run tender, or a secondary transaction. Each has its own challenges — in a market where the SEC has brought pre-IPO fraud cases totaling hundreds of millions of dollars in recent years (SEC charges; FY2024 enforcement results). And price discovery is opaque and event-driven. Prices don't drift smoothly; they gap on a round, a tender, a secondary block, or a headline.

This is the underlying reality onto which crypto exchanges are layering a 24/7, leveraged, continuously liquidating derivative — the tokenized pre-IPO perp.

Reported private-company financials and secondary-market indications may be unaudited, incomplete, non-standard, or based on limited transaction activity. They should not be relied upon as fair value, executable pricing, or a basis for any investment decision.

Disclosure: Augment and/or its affiliates hold a position in Anthropic. References to Anthropic, SpaceX, OpenAI, or any other issuer are for illustrative market-commentary purposes only and are not recommendations, endorsements, or investment opinions regarding any issuer or security.

What perps get right

There are real challenges here, and real innovation. For the first time, a non-accredited retail investor in an eligible jurisdiction can get $100, $200, or $500 of exposure to SpaceX, OpenAI, or Anthropic without navigating any of that.

Augment and/or its affiliates hold a position in Anthropic.

The contracts are global, always on, and two-sided. The automatic transition into a public perp at IPO is elegant. And shorting a private company is now broadly possible — an absolutely critical component of a healthy market.

There's also a liquidity argument worth taking seriously. Real private shares are constrained by shareholder-count limits and transfer restrictions. A tokenized perp is not. In theory, millions of traders on both sides could create the deepest two-sided market, in notional terms, that any pre-IPO name has ever had. That's a real unlock, and the demand it serves is legitimate.

Where the product falls short

The open questions: what that price actually represents, how thin the order books really are, how easily they can be moved or manipulated, and whether the people trading them understand what they're holding and the risks involved. That brings us to four structural issues.

The dilution mismatch. Because the contract tracks headline valuation rather than per-share value, it may not track per-share economics at key financing events.

Walk through an example. A company is worth $100 billion. It raises $50 billion of new capital at a $300 billion post-money valuation. The perp triples. But actual shareholders didn't triple their money, because the company issued new shares to raise that capital. On a per-share basis, the gain is meaningfully smaller, because of dilution.

Now flip it. If you were short, you just lost the full 3x on a move the underlying equity never actually made. Fundraising is the lifeblood of these companies — the single most predictable event in their lives — and every large raise transfers value from shorts to longs in excess of what the business actually did. Combined with funding fees, this may limit the usefulness of these instruments as hedges for actual private-share exposure.

This is the mismatch exchanges are already scrambling to address. Rebasing fixes the share count at IPO, but it doesn't solve the deeper problem.

Tax treatment may differ materially from holding actual shares and may depend on the product, venue, jurisdiction, holding period, and investor circumstances. Investors should consult their own tax advisers. Nothing in this discussion is tax advice

The reference price problem. A perp is only as sound as its index, and there's no clean source of truth for what a private company is worth between funding events. The index is stitched together from secondary prints, dealer marks, tender prices, and model-driven estimates. A bitcoin perp is anchored by spot markets clearing tens of billions of dollars a day. A pre-IPO perp is anchored by transaction windows measured in weeks, many of which are never even reported.

Thin underlying liquidity makes the index influenceable, and an influenceable index makes the funding rate — and the liquidation engine behind it — a target. A handful of secondary trades, or one well-timed headline, can move a reference price that force-liquidates thousands of leveraged retail positions.

Leverage on an event-driven asset. Private valuations don't drift; they gap. Gap risk plus 5x leverage plus thin order books is the recipe for liquidation cascades. The safety mechanisms that backstop crypto perps — insurance funds and auto-deleveraging — have never been tested against an illiquid reference asset that can reprice 30 to 300 percent on a single print. The first real stress event will set the baseline.

We've seen what happens when retail flow, leverage, and FOMO collide. The meme-stock era and the ICO craze showed how far price can detach from value. This market has thinner books, slower truth, and faster liquidations.

Taxes. Hold a stock more than a year and your gain is a long-term capital gain. Hold a pre-IPO perp for a decade and it almost certainly isn't. The favorable rate regulated futures get is reserved for contracts on recognized exchanges, which offshore perps are not (The Tax Adviser; TokenTax). So funding you receive is ordinary income as you go, and the gain when you close is taxed as ordinary or short-term — as high as 37% versus the roughly 20% a long-term holder of the actual shares would pay. The buy-and-hold believer gets the worst of both worlds: fees bleeding the position the whole way, taxed as though they were trading. (None of this is tax advice.)

Is this regulatory arbitrage?

Compare the rights of a perp trader on an offshore exchange to those of a qualified purchaser holding actual shares.

The QP faces accreditation gates, holding periods, transfer restrictions, a right of first refusal, investor-count limits, and weeks of settlement friction. The perp model avoids all of it: unlimited participants, immediate tradability, 24/7 markets, leverage, and the ability to short.

A retail trader abroad gets more "freedom" with a synthetic SpaceX token than qualified U.S. institutions get with the real thing. That is not a level playing field.

If tokenized structures keep accruing structural advantages that traditional securities are denied, that changes the calculus on traditional rails versus blockchain rails. Regulatory uncertainty was once the detractor. Now firms may feel pushed to explore blockchain technology even where the technology itself doesn't solve a problem.

I have no doubt we'll see real innovation inspired by crypto markets, and real solutions built on blockchain rails — solutions that make markets more efficient and actually benefit the people in them. Pre-IPO perps, at least in their current form, aren't that.

When the wrapper detaches from the asset

The pre-IPO market has been hunting for the right wrapper for a decade, and the pattern is uncomfortable: the most accessible and most liquid wrappers have consistently been the worst products for the people they're built to serve.

Destiny Tech100 listed in March 2024 holding real stakes in SpaceX and OpenAI — a genuinely interesting portfolio. Within weeks it traded from a reported net asset value of $4.84 to a price above $100, a premium of more than 2,000 percent, reportedly the largest ever recorded for a closed-end fund. Retail demand met scarce supply, and the price of the wrapper detached from the value of what it held. Everyone who bought owned a great portfolio. The price they paid made it a terrible investment.

Reported private-company financials and secondary-market indications may be unaudited, incomplete, non-standard, or based on limited transaction activity. They should not be relied upon as fair value, executable pricing, or a basis for any investment decision.

Who this product serves

We believe the exchanges listing these products stand to do very well. They've effectively built a structure where the venue collects on every transaction. There's no need to source, diligence, and deliver access to the underlying — just reuse the same perp tech: add a symbol, a funding rate, a reference price, and a disclosure.

Short-term traders get something genuinely new: continuous two-sided pricing and event-driven volatility in an asset class that had neither.

The small, unlevered retail buyer who wants a few hundred dollars of exposure to a name they believe in is honestly the best case for the product. If they understand they own a trade, not an investment — that funding costs erode a buy-and-hold position, that it isn't long-term capital gains, and that they'll never receive shares — the perp does roughly what they want.

It deteriorates from there.

An employee hedging real shares by shorting the perp inherits the dilution mismatch, two tax events instead of one, funding fees, and a cash margin call against an illiquid asset.

Outright shorts face expensive carry, heavy collateral, and the fact that an up round hits them for more than the stock actually moved.

Institutions largely can't touch these at all: no conversion into shares, no tax efficiency, counterparty risk, and liquidation risk that investment policies don't permit.

And the issuers get nothing. The same companies that have called out unauthorized SPVs trading their shares won't embrace a leveraged, 24/7 tape marking their valuation without consent. Not a dollar of volume or value reaches the company, its employees, or its shareholders.

I genuinely applaud the attempt to provide access and liquidity at global scale, in a market where demand is insatiable and supply is scarce. It's always easier to critique than to create. But in their current form, pre-IPO perps aren't an institutional product. They don't solve the systemic problems, and they aren't yet good for the user. They're financial engineering built to monetize global demand without delivering the asset — or a fair and orderly market.

The market is telling us something

The launch matters less as a product than as a signal. In a span of weeks late last year, Charles Schwab agreed to pay $660 million for Forge, Morgan Stanley bought EquityZen, and Goldman Sachs agreed to pay up to $965 million for Industry Ventures. This spring, Robinhood launched a publicly traded pre-IPO fund.

Now the largest crypto exchanges have raced to list synthetic pre-IPO exposure days ahead of the biggest IPO ever. Everyone is coming for this market, because the demand is real and the structural drivers aren't going away.

For Coinbase and Kraken, perps are step one. Kraken is already pairing its perp with tokenized real shares and plans to converge the two after the IPO. The trajectory might seem obvious: synthetic exposure first, real assets next.

For banks, brokerages, and wealth managers, the message is just as clear. If your clients want this exposure. If you don't offer a legitimate, suitable, well-explained way to get it, they'll find a leveraged offshore derivative on their phone at two in the morning. The firms that win will pair real access with education — because the people who don't understand these instruments are the ones most likely to lose money in them.

The wrapper the market is still searching for

What will actually fix this market isn't a cleverer derivative. It's infrastructure that moves real ownership, with real records. Capital flowing to the company, or to its employees and early shareholders, rather than to a trading venue. Transactions the issuer participates in rather than resents. Compliant onboarding that opens the door to both retail and institutional investors. A seamless investing experience. Transparent pricing grounded in actual transactions.

That's the harder wrapper to build, and the approach we're taking at Augment. Augment operates in the private-market infrastructure and data-services ecosystem and may have commercial interests in market structures that differ from the synthetic products discussed here. The views expressed are market commentary and should not be read as an endorsement of any Augment product or a recommendation to use or avoid any third-party venue.

Ironically, every synthetic wrapper helps make the case. Issuer-friendly, regulated, global access to the pre-IPO market might have looked ambitious a few years ago. Now it looks inevitable.

I admire the experiment. Innovation is how markets learn — through exactly this kind of trial and error. Some people will make money. Some will get wiped out by a funding squeeze, others by a gap they never saw coming. Together, their losses will teach the market which structures make sense and which don't.

It's messy and occasionally cruel, but it's how we eventually get what this asset class — and the people in it — deserve: a transparent, accessible, liquid market where investing in great private companies is as boring as it should be. Where issuers can reach capital, employees can sell without begging or getting ripped off, investors get access at a fair price, and nobody has to take a counterparty's word for what a share is worth.

Until then, a simple test. If getting exposure to the hottest private companies on earth suddenly feels too easy, ask what you're actually holding — and what the fees are. A perp may be a useful tool, in the right hands, at the right size, with the right data. Just don't confuse it with the real thing.

📈 Data Point of the Day

1.2% — per day

Coinbase's own funding-rate example walks through a long position charged "a 0.05% positive funding rate applied every hour," which works out to roughly 1.2% in funding fees over a 24-hour period. That's a daily cost, not an annual one, and on a leveraged perp it can compound against a holder even when the price moves their way — which is why a perp behaves less like a position to hold and more like a meter that runs.

🎓 Manual

Rebasing

A rebasing is an adjustment a venue may make to a derivative contract's terms — its multiplier, or the number of underlying units each contract represents — generally to realign the contract with new information, such as a company's disclosed share count. Because venues may rebase on different schedules, by different ratios, or not at all, two contracts that look identical can in some cases diverge in value, which is part of why the same pre-IPO name reportedly traded at different prices across exchanges around SpaceX's S-1.

The Augment Exchange

Today is really MaxMaxxing day here at Pulse! We're thrilled to share with you that Max is also the host of our new podcast, The Augment Exchange:

Private markets are no longer alternative. The Augment Exchange brings you the entrepreneurs, investors, and institutions building this asset class, across four pillars: infrastructure, allocators, entrepreneurs, and analysts. Hosted by Max Melmed, Director of Strategic Partnerships at Augment.

Listen here or wherever you get your pods.

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