Jessy, Golden Finance
Everyone knows it's a bad market maker, but it's still thriving in the industry, and even becoming a barometer of the industry, jokingly called "take me to fly".
"VC + Market Making" - DWF Labs, a company that has risen to fame in the industry in the past two years, is the biggest label. And in the industry, the unanimous opinion is that DWF's VC is fake, and market manipulation is real under the guise of investment.
Market makers are not "bad guys". In trading, market makers provide liquidity for trading pairs, narrow spreads, and match trades for both buyers and sellers. In traditional finance, market makers are regulated and the cost of wrongdoing is high. In the unregulated cryptocurrency industry, the cost of market makers' wrongdoing is relatively low.
In a chaotic industry, the industry's judgment of success and strength has become "who has the strength, who can earn more money". It is under these circumstances that, although DWF Labs has a bad reputation, projects continue to seek cooperation with it, and a large number of retail investors are eager to invest in its projects and market making activities.
However, simply blaming DWF cannot grasp the industry's context. Researching how "bad market makers" succeed may be the key to understanding the rules of success in this industry.
740 Projects in Two Years
DWF Labs was founded in June 2022, during a bear market in the industry. Before DWF's parent company entered market making and investment, it was a high-frequency trading company.
A review of history reveals that DWF Labs emerged before the FTX collapse. After the FTX collapse, a series of leading platforms suffered heavy losses, and market makers and lending became hard hit. For example, Alameda, one of the largest market makers in the cryptocurrency industry, collapsed in this drama, and Genesis, a market maker and lending company under DCG, also faced a liquidity crisis.
At that time, market makers in the industry were almost at a standstill, and market liquidity was severely lacking.
During the market confusion phase, DWF provided liquidity to many small and medium-sized projects, bringing hope to many projects and the industry, and quickly rose to prominence, completing the journey of other market makers in ten years in just two years.
The predecessor of DWF was VRM, and the founding executive Andrei Grachev previously worked at Ulmart, known as the "Russian Jingdong" e-commerce platform. In 2017, he entered the cryptocurrency market and established an organization called Crypsis Blockchain Holding in Moscow. In 2018, he joined the Russian Cryptoeconomics, Artificial Intelligence, and Blockchain Association as the Deputy Director of Trading. In September 2018, he became the CEO of Huobi Russia, and in December of the same year, he joined DWF. In 2019, Russian media revealed his involvement in the $4 billion cryptocurrency Ponzi scheme OneCoin.
According to internal sources at Huobi, due to issues with ability and ethics, Huobi no longer authorized Huobi Russia to Andrei Grachev.
During the bear market, DWF's strategy was simple. First, in terms of project selection, they mostly chose old projects, even some "half-dead" projects, or those greatly affected by news and emotions. When cooperating with such projects, DWF often bought coins at a discounted price, promising the project party to help "boost the coin price". The price trend of the projects manipulated by DWF all had a common feature: a rise followed by a fall, with the coin price taking a big dive at the peak. Their so-called investment was nothing more than market making. This operation was a win-win for both the project party and DWF, as the coins were picked up by retail investors at high prices.
In April of this year, Andrei Grachev stated on X that DWF Labs had invested in over 740 projects, with the investment quantity increasing significantly since November 2023.
During the previous bear market, their significant "investments" included: a $60 million partnership with EOS, where they promised to provide a $45 million EOS token purchase agreement and a $15 million commitment to accelerate growth and adoption for EOS-based projects; a publicized $13.8 million investment in YGG; a $40 million investment in Fetch.ai; $10 million in TON; $10 million in Conflux; and $31 million in RS3, and so on.
These "investments" clearly had some padding. An institution involved in project incubation and investment in the industry told Golden Finance that in the industry, investment institutions and project parties collude to overstate investment amounts to gain publicity, achieving a win-win situation for both the VC and the project party. This phenomenon is quite common in the industry.
According to a Twitter user @nay gmy's on-chain data query, when DWF Labs publicly announced an investment amount of over $150 million, they only found on-chain data information of $65 million.
"Market Maker" Wants to Transform into a Builder
In this year's bull market, DWF Labs' investment and market making model seems to have undergone some changes. Their investments are no longer focused on those "half-dead" projects, and they have been present in almost all of the industry's hottest and most eye-catching meme coins. In addition to investing and market making, DWF also seems to be supporting some "specific construction" in the industry.
This year, DWF purchased $12 million worth of FLOKI, most of which came from FLOKI's treasury; invested $5 million in LADYS; publicly purchased 25 million GALA tokens, and so on.
DWF also seems to have a close relationship with Binance. There are reports that they are likely the market maker for three Binance Launchpool tokens: NFP, XAI, and PROTAL. The Wall Street Journal once reported that Binance's monitoring team found DWF suspected of market manipulation. After this news broke, Binance chose to dismiss the head of the monitoring team. This also shows that DWF and Binance have deep-seated interests.
Indeed, over the past two years, DWF has rapidly grown into a leading institution in the industry. Although there are constant complaints from retail investors, most projects in the industry share the same interests with them. According to data released by PitchBook, DWF Labs is the most active cryptocurrency venture capital institution in 2023.
As DWF Labs expands its investment and market making footprint, its business scope is also expanding. For example, in cooperation with TON, they not only increased the liquidity of its native stablecoin on the chain but also helped TON improve its enterprise services. DWF Labs also participated in node verification for AirDao, launched a POS node on Conflux, and joined the modular Layer1 Self Chain as a validator node, and so on. Regarding these decisions and actions, Andrei Grachev stated on X earlier this year, "DWF Labs is expanding its POS, node, and validator business to support the entire DeFi ecosystem, protocols, and correct governance decisions. The right partner relationships must be based on multiple perspectives, create synergies, and create value for the industry."
This also seems to indicate that DWF Labs wants to transform from a market maker into an "industry builder". And DWF is heavily betting on the gaming track, having strategically invested in MOBOX at the end of 2023, and in 2024, invested in game publisher Sidus Heroes and the metaverse chain game project SIDUS HEROES, and has been actively seeking opportunities in the gaming track. Another track favored by DWF is meme coins, as evidenced by their market making for multiple meme coins. After making enough money, DWF wants to gradually whitewash itself and transform from a "market maker" into an industry builder.
This is not uncommon in the industry. Once the big scythe that harvested leeks is now standing at the forefront of the Hong Kong compliant track, and institutions that once had others write their white papers are now the public chains with the highest stablecoin issuance…
Capital may indeed be all-powerful. However, taking a step back, if these institutions that have made enough money are truly willing to invest in industry construction, rather than disappearing from the scene, it is always a good thing for the industry's development. But for retail investors, following the big harvest operations, they always end up being harvested.
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