Author: 0x26, Luccy, BlockBeats

This weekend, some retail investors and market makers have just experienced a “war”. On the Korean exchange Upbit, the price of Cyber was pulled up to $37, with a premium rate of 167%. On the Binance platform, the price of CYBER is temporarily reported as $13.8. CyberConnect has released an emergency proposal [CP-1] unlocking 10.88 million CYBER, equivalent to $300 million, which is astonishingly high. In response to the panic in the community, the official claimed that there was a data editing error, and the actual unlock amount is 1.08 million coins.

Last night, a well-known figure in the cryptocurrency circle shared his painful experience on his social media platform, which resonated with many. Due to the astonishing increase in the price of Cyber, he shorted and went long multiple times, resulting in losses of millions. What exactly happened in this farce? BlockBeats has compiled the whole story of the event and the market maker logic reflected and represented by DWF behind CYBER.

The 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 tripled. On August 21, Binance launched CYBER 1-20x U perpetual contract, followed by the launch of CYBER on the Korean cryptocurrency exchange Upbit on August 22.

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On the day when CYBER was launched on Upbit, DWF Labs increased its holdings of 170,000 CYBER at an average price of $4.5 from Binance, equivalent to $770,000. According to calculations, the value of this increase in CYBER rose to $1.26 million on August 30.

The Premium CYBER

This “war” between retail investors and market makers officially started on August 31.

At that time, the wallet address of Upbit exchange already held about 3.6 million CYBER, surpassing Binance to become the largest holder of CYBER, accounting for 33% of the token’s circulating supply. At 3 pm that day, Binance suspended the withdrawal of CYBER tokens due to insufficient ETH network balance. Subsequently, on-chain data showed that DWF Labs transferred 40,000 CYBER to the Korean cryptocurrency exchange Bithumb, worth about $360,000.

On September 1, the farce escalated. The price of CYBER on Upbit was more than 30% higher than that on the Binance platform. Within 24 hours, DWF Labs had transferred 170,000 CYBER to Bithumb, worth about $1.46 million.

On September 2, this farce reached its climax. The Upbit wallet address held 3.947 million CYBER, reaching its highest quantity. The price of CYBER continued to rise on mainstream CEXs, and the price on Upbit continued to have a premium, rising from 30% to 167%, reaching $37.1.

A User, 87% of the Voting Power

CyberConnect couldn’t resist and released an emergency proposal [CP-1], hoping to unlock 10.88 million CYBER tokens in advance to ensure liquidity balance between Ethereum, Optimism, and BNB Chain networks.

Due to the time-sensitive nature of this proposal, CyberConnect did not adhere to the DAO’s 7-day voting period 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 plummeted below $20. Starting at 8 pm, CYBER from Upbit wallet addresses began to be transferred out. Currently, a total of 3.6 million tokens have been transferred out, with most of them flowing into Binance.

Although CyberConnect officially announced on September 3rd that there was an editing error in the emergency proposal [CP-1], and the actual unlock amount is not 10.88 million tokens but 1.08 million tokens, and quickly abolished the proposal, introducing security measures to prevent similar incidents from happening again.

However, obviously, the panic, uncertainty, and doubt about CYBER in the market have already fermented. At the same time, the number of votes displayed in the emergency proposal [CP-1] has highlighted the issue of centralization in the project. According to the votes shown in the snapshot, a single user cast 87% of the total voting power.

What this reflects is not only the issue of centralization in a single project but also the fact that in today’s crypto circle, so-called DAO organizations have hardly considered governance issues. Emergency proposals are urgently passed, a single user holds 87% of the voting power, and ultimately, a proposal that has already passed is closed due to “data editing errors”.

No wonder the community has expressed the sentiment that “domestic DAO organizations have hardly any governance and are basically just playing house”.

DWF: A Composite Operation Model of “Investment + Liquidity Provision”

In addition to the issues of project centralization and token control, what cannot be ignored behind the CYBER farce is the presence of market makers.

From the initial price of $4.5 on the day of launch, to the peak of $37.1 (a 167% premium over Binance), and then to the fallback of $12.55 (a 14% premium), in this strange process of skyrocketing and plummeting, on one hand, there were constantly exceeding expectations gains and premiums, and on the other hand, there was a red line that quickly appeared but no one knew when. Perhaps there are quite a few people who can see the traces of market makers behind it, but more people are still attracted by its crazy gains and become providers of liquidity in the Pump and Dump scheme.

As introduced by BlockBeats before, DWF is a global cryptocurrency high-frequency trading company that has been engaged in spot and derivatives trading on more than 40 top trading platforms since 2018, ranking among the top 5 in global cryptocurrency trading volume.

The official website of DWF Labs previously stated that “regardless of market conditions, DWF Labs invests in an average of 5 projects every month”. Since March, DWF Labs has indeed been scanning the secondary market at an average rate of 5 projects per month, which has sparked heated discussions in the community. Some believe that DWF is not making real investments and that holding coins is just for market-making purposes. DWF Labs partner Andrei Grachev also responded, “In addition to investments, we usually provide additional support,” implicitly acknowledging this compound operation mode of “investment + market-making”. The official website also directly displays the sign of providing such business.

DWF Labs explicitly states that it is a global digital asset market maker and a multi-stage web3 investment company for project development. It engages in high-frequency cryptocurrency trading and currently trades on more than 40 top-tier exchanges in spot and derivatives markets. DWF Labs also mentions that it 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 have traded over 800 currency pairs, including spot and derivatives.

Through market-making, DWF states that it allows other market participants to trade project tokens with minimal price impact, which can increase market depth and give investors more confidence in the market liquidity of the project.

Regarding the choice of market-making currencies, unlike Wintermute, which mainly focuses on fundamentally sound blue-chip projects in Europe and the United States, DWF Labs primarily targets East Asian projects and various thematic targets. Many institutions and investors have started to regard tokens such as YGG, DODO, and C98 as the market-making rules of DWF Labs, and have made investment maps for their layout, as well as some currencies that have not yet risen.

In September 2022, MXC received tens of millions of dollars in investment from DWF, but since this year, the price of MXC has been performing poorly, falling from around $0.033 at the beginning of the year to $0.019 against the trend.

Bear Market and the Tragedy of YGG

It is said that GameFi is dead, but at the beginning of last month, YGG (Yield Guild Games), a guild-like project based on GameFi, performed a “Mario jump” after being listed on major mainstream exchanges such as Binance, OKX, and Bybit.

It rose nearly 5 times in 6 days and immediately fell by 60% within 4 hours, causing over tens of millions of dollars in market liquidation.

Although there is no direct evidence that DWF participated in this pump and dump activity, DWF’s on-chain wallets have been marked by multiple on-chain institutions as having received YGG tokens, and DWF did participate in the $13.8 million financing of YGG in February 2023 as a lead investor—through the sale of tokens. In February 2023, DWF Labs and a16z jointly led the investment in the chain game guild Yield Guild Games (YGG), raising $13.8 million through the sale of tokens.

Starting from August 6th, DWF Labs released consecutive funding decisions for YGG, DODO, and C98, causing the three currencies to continue to rise even though they had already increased. Among them, YGG had the largest increase during the second phase, approaching 50%. However, all three experienced a rapid decline after a day of trading, and YGG, in particular, had a maximum decline of about 70%.

The most intuitive feeling comes from DWF’s managing partner Andrei Grachev’s recent tweets about YGG. Andrei, who rarely posts, tweeted twice about YGG. The first one on August 6th congratulated YGG for being listed on Binance, and analyzed the trading depth and pending orders of YGG tokens.

Shortly after the sharp drop in YGG, the CEO of Wintermute, who had a gap with DWF before, sarcastically replied to Andrei’s tweet.

Of course, there are certain differences between this CYBER incident and YGG. DWF does not seem to directly manipulate the CYBER incident, but rather plays the role of a brick mover or a rat warehouse, which is different from the nature of the YGG incident.

“Pump and Dump” – DWF’s Market Making Strategy

Although DWF has previously boasted that it can protect projects from the threat of “pump and dump” price attacks and extreme price fluctuations, there have been several cases of “pump and dump” in DWF’s investment portfolio.

After DWF invested in these projects, within just one month, “pump and dump” incidents occurred, such as with ARLianGuai and Agld.

On April 25th, DWF announced its investment in ARLianGuai Network. Subsequently, the ARLianGuai token rose more than 2 times in price within a month and then fell nearly 40% on the day of its highest price. During this period, the holding amount of ARLianGuai tokens on mainstream trading platforms surged, causing a large number of liquidations. The holdings returned to normal after a period of price decline. The marked area in the following figure indicates the announcement time of the investment.

Data source: Coinglass

On June 22nd, Adventure Gold DAO announced that it had received investment from DWF, with DWF committing to purchase AGLD tokens worth seven figures. Subsequently, within one month, AGLD tokens rose nearly 2 times in price and then fell over 40% on the second day of the peak. Similarly, during this period, the holding amount of AGLD tokens on mainstream trading platforms surged, causing a large number of liquidations. The holdings returned to normal after a period of price decline. The marked area in the following figure indicates the announcement time of the investment.

Data source: Coinglass

It is worth noting that AGLD commented on this matter, seemingly implying something.

“Around July 22nd, the top three accounts on the Bybit 24-hour leaderboard had all joined within the past 5 days, trading only AGLD and earning seven-figure profits. From this, we can speculate who did it…”

Contrasting with the skyrocketing and plummeting of YGG, ARLianGuai, and Agld is the confusion within the community. Take Agld as an example, despite experiencing a roller-coaster-like trend and generating huge profits for the relevant interest group, the number of people in Agld’s Discord community is still less than 200. Many helpless retail investors still have no idea what has happened…

Market Response: Don’t compete against market makers

In order to attract more business clients, DWF Labs mentioned in their “Market Making” business that they “will provide efficient and sustainable liquidity for our partners.” Therefore, the trends of YGG, DODO, C98, and even previous market-making coins have all validated the business level and service quality of DWF Labs.

Returning to the CYBER incident at hand, due to major Korean trading platforms only supporting CYBER deposits and withdrawals on Ethereum, the demand for CYBER in the Korean market has surged, leading to price differences. Seizing the opportunity as a skilled market maker, DWF Labs extracted 170,000 CYBER from Binance when CYBER was listed on Upbit in Korea and began arbitrage.

It can be seen that DWF Labs has already acted as a market maker for two of them, YGG and C98, but it remains to be seen if the next coin to skyrocket and plummet will be among their recently invested projects.

As retail investors in the crypto community, our attitude towards market makers is very complicated. On one hand, the crypto industry needs the existence of market makers, and the mechanisms of token market makers themselves are not malicious. The problem lies in the fact that these mechanisms often do not disclose information to retail investors.

On the other hand, the presence of market makers causes significant losses for retail investors. Going back to what we mentioned at the beginning of the article, in that tweet with over 60,000 views, the retail investor KOL who lost millions wrote at the end of the tweet, “Don’t compete against market makers,” which serves as a warning to everyone in the crypto circle.

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