In the consensus of the crypto community, institutions do not always mean glamour and foresight. In fact, they may be the top players in the game of manipulating the market.
This time, DWF seems to have gotten into trouble again, and the root of the problem once again leads back to Binance.
On May 9th, The Wall Street Journal published an in-depth report on Binance, conducting interviews with Binance employees, reviewing documents, emails, and engaging with other industry participants. The report pointed out that despite the expansion of Binance’s market surveillance team in response to the SEC investigation in 2022, and the hiring of over ten investigators from US banks and Citadel hedge fund, Binance secretly ignored the findings of improper trading and even dismissed the investigation team. In short, they didn’t solve the problem, but got rid of the people who raised the problem.
The improper trading mentioned in the article directly points to the market maker DWF. The investigation team found that VIP clients, who are customers on Binance with a monthly trading volume exceeding $100 million, were engaged in pump-and-dump and wash trading, which are explicitly prohibited by Binance’s terms and conditions. According to the data, DWF played a significant role in this, conducting $300 million worth of wash trading in 2023, manipulating the prices of more than six tokens including YGG, CFX, MASK, ACH, and FET.
After discovering the issue, Binance’s surveillance team submitted a report in late September last year recommending the banning of DWF Labs. However, the final result was that Binance believed there was insufficient evidence of market manipulation, and just one week after submitting the report, the head of the investigation team was dismissed.
The report quickly sparked widespread discussions in the market. DWF immediately responded, stating that “many of the allegations recently reported in the media are unfounded and distorted the facts. DWF Labs adheres to the highest standards of integrity, transparency, and ethics, and we are committed to supporting more than 700 partners in the entire crypto ecosystem.”
Binance co-founder He Yi also responded, stating that Binance has strict market surveillance frameworks for market makers and does not target any funds directly. He emphasized that the competition is among market makers and not the trading platform, and any relevant information will be truthfully reported to regulatory authorities.
Binance clarified, and He Yi responded, source: X platform.
Regardless of the authenticity of this incident, when it comes to DWF, it can already be described as “infamous” in the market maker hierarchy.
Compared to other well-established market makers, DWF hasn’t been in the market for long. According to their official website, DWF Labs is a subsidiary of Digital Wave Finance, claiming to be a leading multi-stage Web3 investment company and ecosystem partner, founded in 2018, primarily providing token listing, market making, and OTC trading solutions to invested companies. However, based on detailed information, the domain registration for DWF Labs was done on May 30, 2022, and their actual presence came into the forefront in 2023.
In 2023, DWF attracted attention in the bear market with its high-frequency trading operations, averaging five times a month. Their founder also frequently showed off luxury cars, shifting the industry’s focus to this investment institution and market maker that was not particularly prominent in scale. According to the data, DWF’s footprint has been established. According to disclosures from the founder, DWF Labs has invested in over 740 projects, and the number of investment projects has increased significantly since November 2023. The official website describes DWF as one of the largest high-frequency cryptocurrency trading entities globally, conducting spot and derivatives market trading on more than 60 exchanges.
In terms of business models, although it seems similar to other investment market makers, DWF extends its business to investment activities compared to other market makers who only focus on market making. Andrei Grachev, the executive founder of DWF Labs, admitted early on that DWF is also an investment company. He stated, “We usually invest before or during the seed stage. If the token has already been listed and tradable, we will invest based on the unlocking schedule, lock-up period, or in batches. In addition to investments, we also provide additional support, such as PR, marketing, fundraising, etc.”
This undoubtedly sparked controversy.
When market makers participate in project investments, it is difficult to avoid suspicions of market manipulation, as they serve as both referees and players. DWF’s habit of transferring project tokens to exchanges for sale further confirms this.
In April last year, Twitter user Nay mentioned that through on-chain data analysis, in almost all cases, DWF Labs’ token inflows and outflows matched the timing and USD amounts, indicating that these were not loans and therefore not standard market maker transactions. DWF Labs’ trading pattern was either buying stablecoins worth $50,000 to $100,000 approximately once a day or making large trades worth up to $5 million per transaction and then depositing all (or almost all) of the funds into centralized exchanges.
These operations directly affect the market to achieve effective cashing out. From a business model perspective, DWF’s main source of profit comes from buying tokens at a discount, selling them at a higher price, or selling investments and market-making services to project parties as a whole, which aligns with the three key business areas disclosed by DWF: investing in liquid tokens, locked tokens, and market-making services. Some industry insiders believe that DWF’s investment is far beyond the scope of traditional investment and is more like off-exchange trading.
This statement is not unfounded. Taking the well-known cases of DWF as an example, on August 6th last year, as an investor, DWF released positive news about YGG, DODO, and C98, causing the prices of these tokens to quickly rise. YGG even surged by 50%. On the same evening, DWF transferred 3.649 million YGG (priced at $0.61) to Binance, making a profit of over a million dollars. After DWF sold its holdings, the prices of the three tokens dropped significantly, with YGG falling by 70%. From an overall perspective, this was a typical case of market manipulation by a market maker.
Similar trends were observed in all three tokens, source: public information.
These operations frequently occur in the tokens invested and market-made by DWF. In an article exposing DWF by The Block last year, it was described that DWF Labs employees used previous token price increase charts as demonstrations during business promotions. One of the founders of DWF Labs, Andrei Grachev, even asked clients about their desired token price increase and its corresponding price. In some of their investments, DWF’s investment logic differs from typical investment institutions, focusing not on technology or team expertise but rather on projects that can rise based on information. For example, last year, DWF invested $60 million in the EOS Network, which had been struggling for years.
In addition to pump-and-dump trading, DWF also appears to engage in false advertising of investment amounts. Nay pointed out that when DWF announced an investment amount of over $150 million, they could only find on-chain data information of $65 million. It is suspected that DWF used the name of project parties to sell at a discounted price and earned delta hedging through prepayment.
It is precisely because of various questionable practices that DWF has been virtually boycotted by all its peers.
At the Token2049 conference last year, DWF Labs, GSR, Wintermute, and OKX, four market makers, were discussing together. In the event photos shared by GSR, the co-founder of DWF Labs, Andrei Grachev, was directly cropped out. GSR even publicly stated, “DWF Labs is absolutely not qualified to join the roundtable discussion, and sharing the same room with DWF Labs is an insult to GSR, Wintermute, and OKX.” Wintermute CEO Evgeny Gaevoy expressed his support by liking the statement.
Feuding among peers, source: public information.
Regarding this incident, the founder of DWF showed disdain and even mocked the other party on X platform. “I never thought you would be so afraid of us. Yes, we are stronger than you in technology, trading, and business development. You have even started cooperating with competitors and complaining and defaming us like a child.”
In fact, if we delve into the founding team of DWF, it is not difficult to find their past records.
Before entering the crypto field in 2017, founder Andrei Grachev was a founder in the logistics industry. He later became the head of Huobi Russia in 2019. While serving as the head, he was suspected of participating in the $4 billion cryptocurrency Ponzi scheme OneCoin and made promises to list OneCoin. Prior to that, Grachev also led a project called Export.online. According to LinkedIn, Andrei Grachev was the CEO of the organization, and Vladimir Perov was the CTO. Investors mentioned that Grachev embezzled customer assets in the project, amounting to $157,000.
Subsequently, Grachev left Huobi and co-founded VRM.trade, the predecessor of DWF, with Vladimir Demin. They claimed that the trading volume could reach $1-20 billion, but this information cannot be verified. There were also rumors in the market that Huobi let Grachev leave due to mistrust in his ability and integrity.
DWF has made multiple clarifications to the outside world, stating that they never manipulate the market and will sell tokens appropriately during the unlocking period. Some of DWF’s partners have also stated that they had a pleasant experience working with DWF, and there were no issues regarding token price manipulation. However, based on their actual performance, doubts about DWF still persist in the market.
Overall, if we compare it to the traditional world, being both a market maker and investor is clearly a paradox and undoubtedly violates securities laws. However, in the crypto industry, this behavior does not cause a major uproar beyond raising suspicions. Ultimately, the crypto market is driven by price increases, and market manipulation by whales is a common occurrence. Sometimes, users even hope for a strong whale to have long-term control of the market. Moreover, from the perspective of project parties, they can clean up excess tokens and gain funds through price increases. This three-party involvement, with each having their own hidden agenda, naturally persists in this particular field of cryptocurrency.
In this context, it is no wonder that the US SEC chairman mentioned in an interview that the lack of protection from securities laws makes the crypto market a breeding ground for fraud, and investors do not receive important disclosure of information. But on the other hand, if regulations become more detailed, it is difficult to answer whether ordinary investors will gain more protection or lose more opportunities. In conclusion, investors should be cautious, conduct thorough investigations, and remain cautious when dealing with potential market manipulators.
Returning to this incident, currently, both Binance and DWF have not been affected by the information and continue to operate normally. According to Rootdata, as of May 10th, DWF Labs has made 33 investments in the past year, with 6 investments made in April alone. Their investment projects include LazyBear, Klaytn, Scallop, Shiba Inu, Tevaera, and NuLink.
Tags:
C98, DODO, DWF Labs, EOS, FET, SEC, YGG, Binance
Source link:
https://mp.weixin.qq.com/s/nZ2huQ6aDsw1BpioANOAlg
Note: The translation provided is a direct translation and may not be an accurate representation of the original article.
