DWF Labs has been identified among the firms accused of engaging in pump-and-dump schemes and market manipulation on crypto exchange Binance last year, according to a report in the Wall Street Journal Thursday.
A former Binance insider claimed that the exchange’s investigations team uncovered $300 million worth of wash trading from DWF Labs, concluding the firm’s actions were violations of the exchange’s terms of use.
Wash trading refers to simultaneously buying and selling the same asset to create a false impression of market activity.
DWF Labs has pushed back against accusations. “It’s competitor-driven FUD,” Heng Yu Lee, a founding partner at DWF Labs, told DL News, using the acronym for fear, uncertainty, and doubt.
According to the WSJ’s report, the accusations stem from complaints about DWF made by rival market-making firms.
They also come as Binance looks to clean up its act after its founder, Changpeng Zhao, pleaded guilty late last year to breaking anti-money-laundering laws and violating sanctions.
DWF Labs calls itself a digital asset market maker. Market makers are employed by crypto projects to ensure their tokens are liquid across exchanges, minimising price volatility and providing better prices for buyers and sellers.
But crypto market making is mired in controversy, with numerous accusations of foul play directed at the firms involved.
DWF case divides Binance
The team that investigated DWF Labs had been hired from the traditional finance world to help clean up Binance’s act, according to the Wall Street Journal’s report.
In September, Binance’s investigations team started investigating DWF after two other market-making firms privately raised concerns.
“Binance’s investigators found that DWF manipulated the price of YGG and at least six other tokens, and made over $300 million in wash trades in 2023,” the Journal said. YGG is the native token of decentralised autonomous organisation, or DAO, Yield Guild Games.
But after the Binance investigations team submitted its findings, something strange happened.
The head of Binance’s VIP client department reportedly questioned the findings and complained to the company’s leadership. After a new inquiry, the exchange determined there was insufficient evidence that DWF engaged in market abuse.
Binance, the executive told the newspaper, felt that the surveillance team’s head had collaborated too closely on the case with one of the DWF competitors that made the original complaints.
The head of the Binance investigations was fired a week after reporting the findings from the DWF investigation.
Market makers brawl
Other crypto market makers previously called out DWF Labs, but haven’t directly accused the firm of wrongdoing.
In September, around the time two unknown market makers complained about DWF Labs to Binance, Cristian Gil, chairman at market maker GSR, said it was “insulting” that DWF Labs CEO Andrei Grachev had been invited to a panel with other market makers at the Token2049 conference.
“It’s very sad that in late 2023, bad actors like DWF Labs can still get so much airtime,” Gil said.
Evgeny Gaevoy, CEO of market maker Wintermute, has also accused DWF Labs and Grachev of incorrectly labelling its trading activity as investments.
Grachev denied accusations of market manipulation in a September interview with Blockbeats. “We are not involved in any manipulation,” he said.
Wintermute hasn’t escaped scrutiny over its market-making practices, either.
In June, a class-action lawsuit against defunct crypto lender Celsius alleged that Wintermute helped prop up the value of Celsius’ CEL token through its market-making activities. It specifically accused the firm of wash trading.
Wintermute has denied these allegations.
“All we’re trying to do is show bids and offers on screen, which is basically our core business. And that’s all there is, basically,” Gaevoy told DL News in an August interview.
Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.
