Wash trading, false advertising, market manipulation? DWF is in trouble again

In the consensus of the crypto circle, institutions do not always mean glamorous and far-sighted. In fact, they may be the top seed players for cutting leeks.

This time, DWF seems to be in trouble again, and the source of the matter is back to Binance again.

On May 9, the Wall Street Journal published an in-depth report on Binance, conducting a related investigation of interviews, documents, emails of Binance employees and other industry participants. The report pointed out that although on the surface, Binance expanded its market monitoring team to respond to the investigation from the SEC in 2022 and hired more than a dozen investigators from Bank of America and hedge fund Citadel, after discovering the improper transactions, Binance secretly ignored it and even fired the relevant investigation team. In short, it does not solve the problem, but solves the person who raised the problem.

The improper transactions mentioned in the article directly point to the market maker DWF. The investigation team found that VIP customers, that is, customers with monthly trading volume of more than 100 million US dollars on Binance, are participating in pump-and-dump and wash trading, which is expressly prohibited by Binance's terms and conditions. From the data, DWF played an important role in it, conducting $300 million in wash trading in 2023, manipulating the prices of more than 6 tokens such as YGG, CFX, MASK, ACH, and FET.

After discovering the problem, the Binance monitoring team submitted a report in late September last year recommending the ban of DWF Labs, but the final result was that Binance believed that there was insufficient evidence of market manipulation, and just one week after submitting the report, the head of the investigation team was dismissed.

After the report was issued, it quickly caused widespread heated discussion in the market. DWF responded immediately, saying that "many of the allegations reported in the media recently are unfounded and distort the facts. DWF Labs adheres to the highest standards of integrity, transparency and ethics, and we remain committed to supporting you and more than 700 partners in the entire crypto ecosystem."

Binance co-founder He Yi also said that Binance has always had a strict market supervision framework for market makers, not targeting any funds, and pointed out that the competition between market makers does not involve trading platforms. In order to ensure the fairness of transactions, the relevant situation will be reported to the regulatory authorities truthfully.

Binance clarification, He Yi response, source: X platform

Regardless of the truth of this incident, if it comes to DWF, in the contempt chain of market makers, it can already be described as "notorious". Compared with other market makers with a long history, DWF has not been in the market for a long time. According to the official website, DWF Labs is a subsidiary of Digital Wave Finance. It claims to be a leading multi-stage Web3 investment company and ecosystem partner. It was founded in 2018 and mainly provides support for token listing, market making, and OTC trading solutions for invested companies. However, according to detailed information, the DWF Labs domain name was registered on May 30, 2022, and the time when it really came to the fore was 2023. In 2023, DWF attracted attention in the bear market with an average of 5 high-frequency investment operations per month. Later, its founder frequently showed off supercars, which shifted the industry's perspective to this investment institution and market maker with a small scale. Judging from the data, DWF's territory has been initially established. According to the founder, DWF Labs has invested in more than 740 projects, and the number of investment projects has increased significantly since November 2023. The official website describes DWF as one of the world's largest high-frequency cryptocurrency trading entities, trading in spot and derivative markets on more than 60 exchanges.

From a business model perspective, although it seems similar to other investment market makers, DWF has extended its business to investment business compared to other market makers that only focus on market making and do not participate in project investment. Andrei Grachev, executive founder of DWF Labs, admitted early on that DWF is also an investment company, and said, "We usually invest in the pre-seed and seed stages of SAFT. If the token is already listed and tradable, we will also invest according to the unlocking schedule and lock-up period or in batches. In addition to investment, we will also bring additional support, such as providing public relations, marketing, fundraising, etc."

This undoubtedly caused controversy.

Market makers participating in project investment are difficult to avoid transaction manipulation to a certain extent, and there is a suspicion of being both a referee and an athlete. DWF's habit of transferring project tokens to exchanges for sale directly confirms this.

Last April, Twitter user Nay mentioned that after on-chain data analysis, the number of tokens in and out of DWF Labs in almost all cases matched the time and dollar amount, which means that these are not loans and therefore not standard market maker transactions. DWF Labs' trading model is to either buy $50,000 to $100,000 in stablecoins once a day or so, or buy large transactions of up to $5 million per transaction, and then store all (or almost all) funds in centralized exchanges.

The above operations can directly affect the effective cashing out of the market. From the perspective of the business model, DWF's biggest source of profit is to buy low and sell high at a discount or to sell investment and market making to project parties in the form of overall services, which is consistent with the three key businesses disclosed by DWF - liquid token investment, locked token investment and market making services. In this regard, some industry insiders believe that DWF's investment has simply left the scope of investment and belongs to over-the-counter transactions.

This statement is not groundless. Take the well-known case of DWF as an example. On August 6 last year, DWF, as an investor, successively released favorable news about the funding decisions of YGG, DODO, and C98, which caused the price of the currency to rise rapidly, and YGG soared by 50%. On the evening of the same day, DWF transferred 3.649 million YGG (then priced at $0.61) to Binance, earning a profit of over one million US dollars. After DWF completed the shipment, the three currencies fell sharply, and YGG fell by 70%. From the overall operation, this is a typical market manipulation by the dealer.

The three currencies have similar trends, source: public information

This operation frequently appears in the currencies invested and market-made by DWF. In the article that The Block exposed DWF last year, it was described that DWF Labs employees used the token increase chart of previous cooperation as a demonstration when promoting business. Andrei Grachev, one of the founders of DWF Labs, even asked customers how much they wanted the token to increase and the price. In the investment of some projects, DWF's investment logic is also different from that of general investment institutions. It does not focus on technology or team expertise, but focuses on projects that can rise based on information. For example, last year DWF invested 60 million US dollars in EOS Network, which had been weak for many years.

In addition to the pull transaction, DWF also seems to have falsely advertised the investment amount. Nay pointed out that when DWF announced an investment of more than 150 million US dollars, it only found the on-chain amount data of 65 million US dollars. It is suspected that DWF sold at a discount price in the name of the project party and earned delta hedging by pre-remittance.

It is precisely because of these operations that DWF has been boycotted by almost all its peers.

At the Token2049 conference last year, four market makers, DWF Labs, GSR, Wintermute and OKX, discussed on the same stage. In the event photos shared by market maker GSR, the photo of DWF Labs co-founder Andrei Grachev was directly cut out. GSR also declared on a public platform that "DWF Labs is absolutely not qualified to join the roundtable discussion. It is an insult to GSR, Wintermute and OKX to be in the same room with DWF Labs." In response to this statement, Wintermute CEO Evgeny Gaevoy expressed his attitude by liking the post.

The scene of the fight between peers, source: public information

In response to this incident, the founder of DWF was quite disdainful and even laughed at the other party on the X platform. "I never thought you would be so afraid of us. Yes, we are better than you in technology, trading, business development, etc. You actually started to cooperate with competitors, and complained like a child and slandered us."

In fact, if you look into the founding team of DWF, it is not difficult to find that there is a criminal record.

Founder Andrei Grachev was the founder of the logistics industry before entering the encryption field in 2017, and later became the head of Huobi Russia in 2019. While serving as the person in charge, he was also suspected of being involved in the $4 billion cryptocurrency Ponzi scheme OneCoin, and made a promise to list OneCoin at the time. Prior to this, Grachev also led a project called Export.online. According to LinkedIn information, Andrei Grachev is the CEO of the organization and Vladimir Perov is the CTO. Investors have mentioned that Grachev misappropriated customer assets of up to $157,000 in the project.

Later, Grachev left Huobi and co-founded DWF's predecessor VRM.trade with Vladimir Demin, claiming that the trading volume could be as high as $10-20 billion, and the information is still unverified. There are also rumors in the market that Huobi let Grachev leave because of his distrust of Grachev's ability and integrity.

DWF has also clarified many times in response to various doubts from the outside world, stating that it never smashes the market, there is no manipulation, and it will sell appropriately during the unlocking period. Some partners of DWF also said that they were very happy to cooperate with DWF, and there was no issue of raising the token price during the period. However, due to actual performance, the market still cannot hide its doubts about DWF.

Overall, compared with the traditional world, market making and investment are obviously a false proposition, and there is no doubt that it will violate the securities law. But in the field of encryption, this behavior will not cause a storm except for raising doubts. In the final analysis, the currency circle convinces people with the rise, and the behavior of bankers can be seen everywhere. Sometimes users' demands are even that there is a strong banker who can control the market for a long time. Even if there is a pull, from the perspective of the project party, some of the excess tokens can be cleared and the funds for the rise can be obtained, which is obviously a vested interest. This situation in which all three parties are involved and have their own ulterior motives has naturally been retained in the special field of encryption.

In this context, it is nothing more than what the chairman of the US SEC mentioned in the interview that due to the lack of protection of securities laws, the encryption market is a fraud-stricken area, and investors have not obtained important information disclosure. On the other hand, if the regulatory coverage is refined, whether ordinary investors will get more protection or lose more opportunities is also difficult to answer. In short, being prudent, doing a good job of investigation, and being cautious in the face of possible market makers are the qualities that investors should possess.

Back to the incident, at present, Binance and DWF have not been affected by the information and are operating normally. According to Rootdata data, as of May 10, DWF Labs has participated in 33 investments in the past year, and has invested 6 times in April alone. The investment projects include LazyBear, Klaytn, Scallop, Shiba Inu, Tevaera and NuLink.