Original author: 0x 26, Luccy, BlockBeats
Original editor: Jaleel, BlockBeats
This weekend, some retail investors and market makers have just experienced a "war". On the upbit exchange in South Korea, the price of Cyber was pushed to $37, with a premium rate of 167%. On the Binance platform, CYBER is currently priced at $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 community's panic, the official claimed that there was a data editing error and the actual unlock amount is 1.08 million coins.
Last night, a KOL in the cryptocurrency circle shared his painful experience on social media, which resonated with many. Due to the astounding rise of Cyber, he took short and long positions multiple times, ultimately resulting in a loss of millions. BlockBeats has compiled the events and the market maker logic behind CYBER on behalf of DWF.
CYBER Comedy of Errors
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 the CYBER 1-20x U perpetual contract, followed by the listing of CYBER on Upbit, a South Korean cryptocurrency exchange, on August 22.
On the day that CYBER was listed on Upbit, according to monitoring by Lookonchain, DWF Labs increased its holdings of 170,000 CYBER from Binance at an average price of $4.5, equivalent to $770,000. Based on calculations, the value of this increase in CYBER rose to $1.26 million on August 30.
The Premium Journey of CYBER
This "war" between retail investors and market makers officially began on August 31.
At that time, the Upbit trading platform wallet address 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 o'clock in the afternoon, Binance suspended the withdrawal service of CYBER tokens due to insufficient ETH network balance. Then, on-chain data showed that DWF Labs transferred 40,000 CYBER tokens worth about $360,000 to the South Korean cryptocurrency exchange Bithumb.
On September 1st, the farce escalated, and the CYBER price on Upbit was more than 30% higher than that on the Binance platform. Within 24 hours, DWF transferred 170,000 CYBER tokens worth about $1.46 million to Bithumb.
On September 2nd, the farce reached its climax. The Upbit wallet address held 3.947 million CYBER tokens, reaching the highest amount. The price of CYBER on mainstream CEX platforms kept rising, and the CYBER on Upbit continued to have a premium, increasing from 30% to 167%, with the price reaching $37.1.
A user, 87% of the voting power
CyberConnect couldn't hold back and released an emergency proposal [CP-1] hoping to unlock 10.88 million CYBER tokens in advance to ensure liquidity balance between the Ethereum, Optimism, and BNB Chain networks.
Due to the consideration of time and urgency in this proposal vote, CyberConnect did not comply with the DAO's 7-day voting period policy and the vote ended at 4 o'clock on the same day. After the emergency proposal [CP-1] was passed, the price of CYBER on the Upbit platform quickly plummeted, falling below $20. Starting at 8 o'clock in the evening, CYBER tokens from the Upbit wallet address began to be transferred out. Currently, a total of 3.6 million tokens have been transferred, with most of them flowing into Binance.
Although CyberConnect officially announced on September 3rd that there were editing errors in the emergency proposal [CP-1], and the actual amount unlocked was not 10.88 million tokens but 1.08 million tokens, and quickly revoked the proposal, introducing security measures to ensure that similar incidents do not happen again.
However, it is obvious that the panic, uncertainty, and questioning about CYBER in the market have fermented. At the same time, the community discovered the votes displayed by the emergency proposal [CP-1], which also highlighted the centralization issue of the project. According to the votes shown in the snapshot, only one user cast a decisive vote that accounted for 87% of the total votes.
Behind this reflects not only the centralization issue of individual projects, but also reflects that in today's encryption circle, the so-called DAO organizations have hardly considered governance issues. Emergency proposals, emergency approvals, one user, 87% of the votes, and ultimately closing passed proposals due to "data editing errors".
No wonder the community will express the sentiment that "the so-called DAO organizations in China have almost no governance, basically just playing house."
DWF: A Compound Operation Model of "Investment + Liquidity Provision"
In addition to the issues of project centralization and token control, what is difficult to ignore behind the CYBER farce is the existence of liquidity providers.
From the initial listing price of $4.5, to the peak of $37.1 (a 167% premium over Binance), and then to the fallback of $12.55 (a 14% premium), in this peculiar process of skyrocketing and plummeting, on one side there are constantly surpassing expectations of price increases and premiums, and on the other side there are red lines that will quickly appear but one never knows when. Perhaps many people can see the traces of market-makers behind it, but more people are still attracted by its crazy price increases and become liquidity providers in the Pump and Dump.
As previously introduced by BlockBeats, DWF is a global high-frequency cryptocurrency trading company that has been engaged in spot and derivative trading on more than 40 top-tier trading platforms since 2018, ranking 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 every month". Since March, DWF Labs has indeed been scanning the secondary market at a rate of 5 projects per month, which has sparked a heated discussion in the community, with the belief that DWF is not a real investment and that holding coins is just for providing liquidity. DWF Labs partner Andrei Grachev also responded by saying, "In addition to investment, we usually bring additional support," implicitly acknowledging this compound operation model of "investment + liquidity provision," and the official website also directly displays the sign of providing such services.
DWF Labs explicitly states that it is a global digital asset market maker and multi-stage web3 investment company focusing on project development. They are engaged in high-frequency cryptocurrency trading and currently trade in the spot and derivatives markets on more than 40 top exchanges. DWF Labs also mentions that they can provide cutting-edge market-making execution capabilities to create trading volumes for projects and provide healthy liquidity. Currently, they have integrated with the top 40 ranked trading platforms and trade over 800 currency pairs, including spot and derivatives.
Through market-making, DWF claims to allow other market participants to trade project tokens with minimal price impact, thus increasing market depth and giving investors more confidence in the market liquidity of the projects.
In terms of choosing the market-making currencies, unlike Wintermute, which focuses on fundamentally sound European and American blue-chip projects, DWF Labs mainly targets East Asian projects and various thematic benchmarks for market-making. Many institutions and investors have started using YGG, DODO, C 98, and other tokens as the market-making targets of DWF Labs, creating investment strategies and identifying some currencies that have not yet experienced significant price increases.
In September 2022, MXC received tens of millions of dollars in investment from DWF. However, the price of MXC has performed poorly since the beginning of this year, falling from around $0.033 to $0.019.
Bear Market and YGG Disaster
It is said that Gamefi is dead, but last month, the guild-based Gamefi project YGG (Yield Guild Games), after listing on major mainstream exchanges such as Binance, OKX, and Bybit, performed a "Mario jump" for everyone.
In just 6 days, it surged nearly 5 times and then plummeted 60% within 4 hours, causing a market-wide liquidation of tens of millions of dollars.
Although there is no direct evidence to prove that DWF was involved in the looting activities, the on-chain wallets marked as DWF did receive YGG tokens, and DWF did indeed lead the $13.8 million financing round for YGG in February 2023 through the sale of tokens. In February 2023, DWF Labs and a16z jointly led the investment in Yield Guild Games (YGG), raising $13.8 million through the sale of tokens.
Starting from August 6th, DWF Labs released consecutive news about funding decisions related to YGG, DODO, and C 98, which prompted the continued rise of these three cryptocurrencies that were already experiencing some growth. Among them, YGG had the largest increase during the second phase, approaching 50%. However, after a day of market performance, all three currencies quickly fell back, with YGG experiencing the largest drop, about 70%.
The most obvious observation comes from Andrei Grachev, DWF's Managing Partner, and his recent tweets about YGG. Andrei, who rarely posts, tweeted twice about YGG. The first one on August 6th congratulated YGG on launching the Binance contract, and analyzed the trading depth and order book of YGG tokens.
Shortly after the severe drop of YGG, the Wintermute CEO, who previously had a rift with DWF, sarcastically replied to Andrei's tweet.
Of course, this CYBER incident is different from the YGG incident, and it seems that DWF is not directly involved in the CYBER incident but is playing a role of moving bricks or insider trading, which is different from the nature of the YGG incident.
"Pull first, then smash" strategy of DWF
Although DWF has touted itself as being able to protect projects from "pull first, then smash" price attacks and extreme price fluctuations, there have been several unjustified instances of "pull first, then smash" in DWF's investment portfolio, aside from the controversial YGG case.
After DWF invested in these projects, there were instances of "pull first, then smash" within just one month, such as with ARPA and Agld.
On April 25th, DWF announced its investment in ARPA Network, and within a month, the price of ARPA token more than doubled, only to drop nearly 40% on the day of its highest price. During this period, the holdings of ARPA tokens on mainstream trading platforms surged, resulting in a large number of forced liquidations. The holdings gradually returned to normal after the price drop. The marked area in the image below indicates the announcement of the investment.
Data source: Coinglass
On June 22nd, Adventure Gold DAO announced that it received investment from DWF, with DWF committing to purchase AGLD tokens worth seven figures. Within a month, the AGLD token price rose by nearly 2 times, only to drop over 40% on the second day of its peak. Similarly, during this period, the holdings of AGLD tokens on mainstream trading platforms surged, resulting in a large number of forced liquidations. The holdings gradually returned to normal after the price drop. The marked area in the image below indicates the announcement of the investment.
Source: Coinglass
It is worth noting that AGLD has made a comment on this matter, seemingly insinuating something.
"Around July 22nd, the top 3 accounts on Bybit's 24-hour leaderboard all joined within the past 5 days, trading only AGLD and earning seven-figure profits. From this, we can speculate who did it..."
And in contrast to the skyrocketing and plummeting of YGG, ARPA, and AGLD, the community is perplexed. Take AGLD as an example, despite experiencing a roller coaster-like trend and creating huge profits for the relevant 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 has happened...
Market Response: Don't be on the opposite side of the market maker
In order to attract more commercial 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, C 98, and even other market-making coins have precisely validated the business level and service quality of DWF Labs.
Turning back to the CYBER farce at hand, as the major Korean exchanges only support CYBER deposits and withdrawals on Ethereum, the demand for CYBER in the Korean market has surged, resulting in price discrepancies. Seizing this opportunity as a skilled market maker, DWF Labs quickly extracted 170,000 CYBER from Binance when CYBER was listed on Upbit.
What we can see is that DWF Labs has already made markets for two of them, YGG and C 98. However, it's uncertain whether the next currency to experience a sharp rise or fall will be among its recent investment projects.
As retail investors in the cryptocurrency circle, our attitude towards market makers is very complex. On the one hand, the cryptocurrency 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 to retail investors. Going back to what we mentioned at the beginning of the article, in that tweet that had over 6W views, the retail investor KOL who lost millions of dollars wrote at the end of the tweet, "Don't be an opponent to the market makers," which is a warning to everyone in the cryptocurrency circle.
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