Written by: 0x26, Lucy, BlockBeats
Editor: Jaleel, BlockBeats
This weekend, some retail investors and market makers just experienced a "war". On the Korean exchange upbit, the price of Cyber was pulled to $37, with a premium rate of 167%. The price of CYBER on the Binance platform was temporarily reported at $13.8. CyberConnect issued an emergency proposal [CP-1] to unlock 10.88 million CYBER, equivalent to $300 million, a staggering amount. To the horror of the community, the official claimed that the data was edited incorrectly and the actual unlocked amount was 1.08 million.
Last night, a cryptocurrency KOL shared his painful experience on his social media, which resonated with many people. Due to the amazing increase of Cyber, he shorted and longed many times, which eventually led to a loss of millions. What exactly happened in this farce? BlockBeats sorted out the whole incident, as well as the market maker logic reflected and represented by DWF behind CYBER.
CYBER farce
As the only token issued by CyberConnect, CYBER was sold to the public through CoinList on May 18 this year. Just three months later, the opening price rose more than three times. On August 21, Binance launched CYBER 1-20 times U-based perpetual contracts, and then the Korean cryptocurrency trading platform Upbit launched CYBER on August 22.
On the day when Upbit launched CYBER, according to Lookonchain monitoring, DWF Labs increased its holdings of 170,000 CYBER from Binance at an average price of US$4.5, equivalent to approximately US$770,000. It is calculated that the value of this increased CYBER rose to US$1.26 million on August 30.
CYBER with a premium price all the way
This "war" between retail investors and market makers officially started on August 31.
At that time, the wallet address of the Upbit trading platform already held about 3.6 million CYBER, surpassing Binance to become the largest holder of CYBER, accounting for 33% of the circulating supply of tokens. At 3 pm that day, Binance suspended the withdrawal of CYBER tokens due to insufficient ETH network balance. Then, on-chain data showed that DWF Labs transferred 40,000 CYBER to the Korean cryptocurrency trading platform Bithumb, worth about US$360,000.
On September 1, the farce escalated. The price of CYBER on Upbit was more than 30% higher than that on Binance platform during the same period. Within 24 hours, DWF transferred 170,000 CYBER to Bithumb, with a value of approximately US$1.46 million.
On September 2, the farce reached its climax. The Upbit wallet address held 3.947 million CYBER, the highest number. The price of CYBER on mainstream CEX continued to rise, and CYBER on Upbit continued to be premium on this basis, from 30% to 167%, and the price rose to US$37.1.
One user, 87% of votes
CyberConnect officials could not wait any longer and released an emergency proposal [CP-1], hoping to unlock 10.88 million CYBER in advance to ensure its liquidity balance among the Ethereum, Optimism and BNB Chain networks.
Due to the time interest and urgency of this proposal vote, CyberConnect did not comply with the DAO's 7-day voting policy, and the voting ended at 4 pm on the same day. After the emergency proposal [CP-1] was passed, the price of CYBER on the Upbit platform fell sharply below $20. Starting at 8 pm, CYBER in the Upbit wallet address began to be transferred out. A total of 3.6 million CYBERs have been transferred out so far, most of which have flowed into Binance.
Although CyberConnect officially issued a statement on September 3rd that there was an editing error in the data in the emergency proposal [CP-1], the actual unlocked amount was not 10.88 million, but 1.08 million, and the proposal was quickly abolished, and security measures will be introduced to ensure that similar incidents do not occur again.
But obviously, the panic, uncertainty and doubts about CYBER have fermented in the market. At the same time, the community found that the number of votes shown in the emergency proposal [CP-1] also made the centralization problem of the project truly highlighted. According to the number of votes shown in the snapshot, only one user cast 87% of the total votes.
What this reflects is not only the centralization problem of a single project, but also that in today's crypto community, the so-called DAO organizations have hardly considered governance issues. Emergency proposals were made and passed urgently. One user had 87% of the votes, and finally the passed proposal was closed due to "data editing errors."
No wonder the community has expressed the feeling that "the so-called DAO organizations in China have almost no governance and are basically just playing house."
DWF: A composite operation model of "investment + market making"
In addition to the issues of project centralization and token control, what is even more difficult to ignore behind the CYBER farce is the existence of market makers.
From $4.5 on the day of listing, to the peak of $37.1 (167% premium over Binance), and then to $12.55 (14% premium) after the decline, in this bizarre ups and downs, on the one hand, the expected increase and premium are constantly refreshed, and on the other hand, the red line is coming soon but no one knows when it will appear. Perhaps there are many people who have seen the traces of market makers behind it, but more people will still be attracted by its crazy increase and become the providers of liquidity in the Pump and Dump.
According to BlockBeats, DWF is a global high-frequency cryptocurrency trading company. Since 2018, it has conducted spot and derivatives trading on more than 40 top trading platforms and ranks among the top 5 in global cryptocurrency trading volume.
DWF Labs’ official website previously stated that “regardless of market conditions, DWF Labs invests in an average of 5 projects per month.” Since March, DWF Labs has indeed been buying up 5 projects in the secondary market on average per month, sparking heated discussions in the community. Some believe that DWF is not really investing and is only taking coins for market making. DWF Labs partner Andrei Grachev also responded, “In addition to investment, we usually bring additional support,” which is considered to be a tacit acknowledgement of this “investment + market making” compound operating model, and the official website also directly puts up a sign that provides such services.
DWF Labs clearly states that it is a global digital asset market maker and a multi-stage web3 investment company for project development, and is engaged in high-frequency cryptocurrency trading. It is currently trading in the spot and derivatives markets on more than 40 top exchanges. DWF Labs also mentioned that DWF can provide cutting-edge market-making execution capabilities, create trading volume for projects as a service, and provide healthy liquidity. Currently, they have integrated with the top 40 trading platforms and trade more than 800 currency pairs, including spot and derivatives.
Through market making, DWF said it can allow other market participants to trade the project's tokens with less price impact, which can increase market depth and make investors more confident in the market liquidity of the project.
In terms of selecting market-making currencies, unlike Wintermute which focuses on European and American blue-chip projects with good fundamentals, DWF Labs mainly targets East Asian projects and various new and old sentiment-themed targets for market making. Many institutions and investors have begun to use YGG, DODO, C98 and other tokens as DWF Labs' market-making rules, and have begun to make investment maps of their existing layouts, as well as some currencies that have not yet risen.
In September 2022, MXC received tens of millions of dollars in investment from DWF. However, the price of MXC has been very sluggish since the beginning of this year, falling against the trend from around US$0.033 at the beginning of the year to US$0.019.
There are many monsters in the bear market, the YGG tragedy
Everyone said Gamefi was dead, but at the beginning of last month, YGG (Yield Guild Games), a guild project based on Gamefi, performed a "Mario jump" for everyone after it was listed on large mainstream trading platforms such as Binance, OKX and Bybit.
It increased nearly 5 times in 6 days, and then immediately fell 60% within 4 hours, causing the market to liquidate more than 10 million US dollars.
Although there is no direct evidence that DWF participated in this pull-and-smash activity, the on-chain wallet marked as DWF by multiple on-chain institutions did receive YGG tokens, and DWF did co-lead YGG's $13.8 million financing in February 2023 - by selling tokens. In February 2023, DWF Labs and a16z led the investment in the blockchain game guild Yield Guild Games (YGG), which raised $13.8 million in funds by selling tokens.
Starting from August 6, DWF Labs released news about funding decisions of YGG, DODO, and C98, which prompted the three currencies to continue to rise after they had already risen. Among them, YGG had the largest increase in the second stage, close to 50%. However, all three fell back quickly after one day of trading, and YGG also had the largest drop of about 70%.
The most intuitive feeling is the recent tweet about YGG by Andrei Grachev, the managing partner of DWF. Andrei, who rarely posts, posted two tweets about YGG. The first one on August 6 congratulated YGG on its launch on Binance contracts and analyzed the trading depth and pending orders of YGG tokens.
Shortly after YGG's stock price plummeted, Wintermute's CEO, who had previously had a rift with DWF, responded to Andrei's tweet in a mocking manner.
Of course, there are still some differences between this CYBER incident and YGG. DWF does not seem to be directly manipulating this CYBER incident, but is only playing the role of moving bricks or insider trading, which is different in nature from the YGG incident.
"Pull up first and then drop", DWF's market making strategy
Although DWF has been promoting itself as a company that can protect projects from the threat of "pump and dump" price attacks and extreme price fluctuations, DWF's investment portfolio, apart from the much-criticized YGG, has seen many cases of "pump and dump" for no apparent reason.
Only one month after these projects were invested in by DWF, the "pull up and then crash" incidents occurred, taking ARPA and Agld as examples.
On April 25, DWF announced its investment in ARPA Network. Subsequently, the price of ARPA tokens increased by more than 2 times within a month, and fell by nearly 40% on the day of the highest price. During this period, the holdings of ARPA tokens on mainstream trading platforms surged, causing a large number of liquidations. The holdings returned to normal within a period of time after the price fell. The marked point in the figure below is the time of investment announcement.
Data source: Coinglass
On June 22, Adventure Gold DAO announced that it had received investment from DWF, which promised to purchase AGLD tokens worth seven figures. Subsequently, the AGLD token rose nearly 2 times in a month, and fell more than 40% the day after the peak. Similarly, during this period, the holdings of AGLD tokens on mainstream trading platforms surged, causing a large number of liquidations. The holdings returned to normal within a period of time after the price fell. The marked point in the figure below is the time of investment announcement.
Data source: Coinglass
It is worth noting that AGLD made comments on this matter, which seemed to be meaningful.
“Around July 22, the top 3 accounts on the Bybit 24-hour leaderboard all joined in the past 5 days, traded only AGLD, and made 7-digit profits. From this, we can speculate who did it...”
In contrast to the sharp rise and fall of YGG, ARPA, and Agld, the community is at a loss. Take Agld as an example. Even though it has experienced a roller coaster-like trend and created huge profits for related interest groups, the number of people in Agld's Discord community is still less than 200. Many helpless retail investors still don't know what happened...
Market response: Don’t trade against market makers
In order to attract more commercial clients and project parties, DWF Labs mentioned in the "Market Making" business that "it will provide efficient and sustainable liquidity for our partners." Therefore, the similar trends of YGG, DODO, C98 and other previously market-making currencies just verify the business level and service quality of DWF Labs.
Back to the CYBER farce, since the main trading platforms in South Korea only support CYBER deposits and withdrawals on Ethereum, the demand for CYBER in the Korean market has surged, resulting in price differences. At this time, as a good market maker, DWF Labs seized the opportunity and withdrew 170,000 CYBER from Binance when CYBER was listed on Upbit, starting arbitrage.
It can be seen that DWF Labs has already made markets for two of them, YGG and C98. It is just unknown whether the next currency to soar or plummet will be one of its recently invested projects.
As retail investors in the crypto world, we have a very complex attitude towards market makers. On the one hand, the crypto industry needs market makers, and the mechanisms of token market makers themselves are not malicious. The problem is that these mechanisms usually do not disclose information to retail investors.
On the other hand, the existence of market makers has caused retail investors to suffer huge losses. Back to what we said at the beginning of the article, in that tweet with over 60,000 views, this retail investor KOL who lost millions wrote at the end of the tweet, "Don't trade against market makers," which is a warning to everyone in the cryptocurrency circle.
