Introduction

Over the past week, there has been an extraordinary amount of volatility in pre-IPO markets following the “We Must Pace the Frontier” article by Dario and Anthropic. Below is a short analysis of the various pre-IPO venues, looking at price, volume, liquidity and spreads.

Bullets

• Price & Volume
• Execution Cost
• Arbing the Spread

Price & Volume

The charts below show the 1-minute mid prices of the Anthropic pre-IPO perp $ANTH across Variational, QFEX, Lighter and Entropy from September 9th to the 15th.

At first glance, it’s obvious that traders across the various venues are far from agreeing on the true value of Anthropic. On September 10th, the implied valuation of Anthropic was ~$150b higher on Entropy and Lighter than on Variational and QFEX. While this spread narrowed over the weekend, it has once again widened significantly.

As seen below, the pre-IPO markets only began selling off a couple of hours after the release of “We Must Pace the Frontier” and the responses from Elon and Sam Altman saying they agreed with the piece. From the release of the post to the bottom tick on Sunday, the four perps sold off by an average of 4.95%, with Entropy seeing the largest decline at 5.54%.

h/t to Carlisle for inspiring the graphic above.

Variational’s pre-IPO index aggregates external venues that already list the $ANTH contract, such as Binance Futures. Given that QFEX and Variational $ANTH mid prices are nearly identical over this 7d window (median gap of a few cents) market makers on QFEX are almost certainly quoting around that same external reference (potentially Binance Futures).

Throughout this 7d period, Entropy had the lion’s share of trading activity, with $53.2m traded on $ANTH and $23.5m on $OAI:

Execution Cost

The graphic below shows expected slippage on a $100k taker order averaged across both the ask and bid side of the orderbook. QFEX had the lowest expected slippage, with a 10.6bp median cost compared to 36.3bps on Entropy, 69.5bps on Variational and 288.2bps on Lighter.

It's worth acknowledging that this isn't a fully accurate picture of the actual execution cost when placing an order. The execution quote from Variational updates roughly every 10 seconds, and Entropy and QFEX also have trading fees (although both are in growth mode so the taker fee is 0.9bps on Entropy and 1.5bps on QFEX). Apart from this, several venues have cancel priority, meaning that market makers can pull their quote before an order is filled, which can worsen the realized execution. Finally, both Lighter and Hyperliquid enable improved taker latency through account tiers and priority fees, which should also be taken into consideration.

Below is a similar analysis but for a $1k taker order, with Lighter excluded due to larger slippage than the other venues. Once again, QFEX has the tightest spread followed by Entropy and then Variational.

Arbing the Price Spread

As discussed above, $ANTH traded at a significant premium on Entropy and Lighter relative to Variational and QFEX, and still does at the time of writing. Looking at the two most liquid venues over this timeframe, QFEX and Entropy, the spread oscillated between ~150 and 800bps throughout this period. The graph below shows the "executable" spread when shorting the expensive perp and longing the cheap perp, thus looks at top bid on Entropy and top ask on QFEX.

$ANTH on Entropy trades at around a 3.5% premium to QFEX and swings multiple percentage points daily. As this is a pre-IPO market, there is no true price for Anthropic. While you would expect these markets to converge closer to Anthropic’s actual IPO, the spread could widen significantly in the interim.

The cumulative net funding during the period Sep 9th-15th was +1.12bps (0.0012) on QFEX and -41bps on Entropy (-0.0041). If you enter this spread and wait for convergence closer to the IPO, rather than entering and exiting at discretionary spread levels, a lot of the expected profit could be lost to funding costs.

It's important to understand the specific pre-IPO design of the venues you are trading on, especially if you are trying to arb the spread between these. Entropy, for example, uses a market cap methodology, fixing supply at 1b shares, whereas QFEX reprices the perp, similar to a stock-split, once information about total $ANTH shares are published and assuming it's more than 3% away from 1b shares.

There are multiple ways to take a stab at trading the spread on these pre-IPO markets, including substituting one leg for an equity that is highly correlated with these pre-IPO perps. More on that in a future post.