Interview: Jack, BlockBeats
Organized by: Sharon, BlockBeats
Editor: Jaleel, BlockBeats
This year, the name of DWF Labs has become familiar in the currency circle.
Since March, DWF Labs has been scanning the secondary market at an average of 5 projects per month, frequently making large investments, triggering heated discussions in the community. Andrei Grachev, managing partner of DWF Labs, said in an interview that in most cases, DWF Labs invests in projects by directly purchasing Tokens.
In this regard, the community believes that DWF is not a real investment, and the currency is just for market making. In recent months, three currencies, YGG, DODO, and C 98, have gone out of the same trend of skyrocketing and plummeting. Although there is no direct evidence that DWF participated in this smashing activity, there are wallet addresses marked as DWF by many on-chain institutions. Many on-chain actions have further confirmed some institutions and investors’ previous conjectures about the market-making behavior of DWF Labs. However, due to differences in the level of investors, some people win both ups and downs, while others suffer heavy losses in this short-term market.
Coincidentally, the CYBER farce at the end of August drew attention to DWF Labs again. Its arbitrage behind the scenes caused huge fluctuations in the market, and the community was extremely dissatisfied with this.
In this regard, some people believe that DWF Labs’ manipulation of the crypto market is too blatant, which will seriously affect the reputation of the currency circle and may be subject to more stringent supervision. Recently, BlockBeats exclusively interviewed Andrei Grachev, co-founder of DWF Labs, to explore more considerations behind the controversy.
Andrei Grachev, the co-founder of DWF Labs, graduated from Orenburg State University (OSU) and had previous work experience in the logistics industry and online trading industry. He joined the blockchain and cryptocurrency industry in 2017 and served as the manager of Crypsis Blockchain Holding. Managing Partner, as well as the Vice President of Trading of the Russian Crypto Industry and Blockchain Association (RACIB) and the CEO of Huobi Russia, co-founded DWF Labs in 2018.
The current market needs more than liquidity
Before 2023, DWF Labs did not break out of the circle; but since this year, DWF Labs has frequently taken action and participated in the market making of multiple projects, which has attracted great attention. According to data from its official website, since 2018, DWF Labs has conducted spot and derivatives transactions on more than 60 top trading platforms, trading more than 800 currency pairs, covering almost all vertical fields of Web3, and maintaining a leading position in the entire market maker field. maintain a leading position.
In selecting market-making currencies, DWF Labs focuses on East Asian projects and various new and old sentiment-themed targets. Its market-making projects include but are not limited to CFX, MASK, ACH, FET, YGG, etc. Among them, YGG and CYBER at the end of August are projects that have a high degree of discussion about DWF Labs in the encryption industry community.
Among these two projects, pull first and then smash is the biggest doubt in the community about DWF Labs, and it is also the core of DWF Labs controversy. Many projects that DWF Labs participates in market making, including these two projects, have experienced sharp rises and falls in a short period of time, but many people have suffered heavy losses in YGG and CYBER. Wintermute once took the lead in questioning DWF Labs bad intentions. Some people in the community also questioned whether DWF Labs was suspected of acting as both a referee and a player?
BlockBeats: What progress has the DWF Labs project made so far?
Andrei：We have made important progress in building a network and meeting with partners, customers, exchanges and project parties. This is very important to our business. Just today Ive had six meetings with some big projects involved in something, as well as a couple of startups, for our incubator.
BlockBeats: I understand that DWF has a very unique way of operating projects, and you are very active on social platforms, which arouses heated discussions. How do you think venture capital in the crypto industry or partners in the crypto ecosystem should participate in the operation of the market and provide liquidity?
Andrei：Overall, the market is very competitive and will be even more competitive in the future than it is now, as projects increasingly require a specific type of support. Special means that, for example, one or two years ago, it was okay to only provide liquidity and not do anything else, even if the liquidity was weak. We joined this space about a year ago and we also received reports from manufacturers in another market. One of the projects once sat down with us to communicate, and the founder of that project has been a friend of ours for many years.
Before 2022, we have never provided liquidity to projects, we have always provided liquidity to exchanges. We trade every currency with a certain trading volume and volatility, every futures and options. And when we work with projects, we dont need to build a system from scratch or adapt it for a specific project. 99% of the time, if it is not an IOA (Initial Offering Agreement), but a project that is already on the market, what we need to do is slightly adjust our strategy to be consistent with the goals of the project.
As for the ecosystem, ecosystem support includes transaction volume, protocol execution, bringing projects into the protocol, etc. That also includes working with our portfolio because we have a large portfolio now that has value in its own right. Then there are marketing, technology, human resources support and so on. I believe that if a company wants to win in the market competition of providing liquidity, the company should be able to generate branches that can provide more complementary value. For example, if we work with you and you need to find a developer, a CTO, a marketing director, you dont need to go elsewhere, you can ask us directly because we are partners and we will provide complementary services .
This is our philosophy, risk is key. On the one hand, you need to manage your risks, and you need to create opportunities as much as possible so that you can take advantage of them in the future; on the other hand, I dont look like a financier, and no one on our team looks like a financier. , we only care about our work and not about our appearance. What we care about is how we perform in the market.
BlockBeats: But people would say that market making or ecosystem partners are there for the long term, whereas VCs are inherently short-term players. What to think about this?
Andrei：If we are in 2021, venture capital does have a somewhat short-term nature. If you invest in a project today, the token will be listed on the exchange in one to two months. You can cash out your investment. Even if it is 5% of the unlocked tokens, you will be able to recover your capital or even make money, because the increase may be 20 times or 50 times; but times are completely different now, and for now, this kind of venture capital investment is a long-term strategy, which is very risky because you can predict what the market will do in the near future, but you cant predict what the market will do in two years. We are in a bear market cycle that looks like it will turn into a bull market soon, but that is just a look, a bull market is not coming anytime soon.
This is our venture capital philosophy. One side is more about quality than quantity, building some clout first and then converting that into quantity because venture capital is always about numbers. If you have only one project, even if you have a 75% chance of winning, there is a 1/4 chance of failure; but if you have 100 projects, even if 75 projects fail, there are still 25 projects that can make you tens of dollars. 100 million. This is a statistics game. But the quality of your decisions depends on your goals and skills. Now we are working hard to grow our skills and capabilities in venture capital.
DWF doesnt manipulate anything
Currently, the encryption industry’s doubts about DWF Labs focus on its dual market making and investment behaviors. VC + market maker is the area where DWF Labs has been criticized the most. This is also clearly marked on its official website. DWF Labs does not seem to shy away from flaunting its attributes in this way. The official website of DWF Labs has previously stated that no matter what the market conditions are, DWF Labs invests in an average of 5 projects every month.
According to public information, DWF Labs investment projects include Fetch.ai, Synthetix, Flare Network, Coin 98, Yield Guild Games (YGG), TON, Conflux, Mask Network, etc. From blockchain infrastructure, DeFi, NFT, chain games to DAO, decentralized social networking, data analysis, privacy, and entertainment, it seems difficult to find the investment focus of DWF Labs. However, many of its investment projects involve the phenomenon of pull first and then smash.
For example, on April 25 this year, DWF Labs announced its investment in ARPA Network. Subsequently, the price of ARPA tokens increased more than 2 times within a month, and fell nearly 40% on the day of its highest price; on June 22, Adventure Gold DAO announced that it had acquired DWF Labs investment, DWF Labs committed to purchase AGLD tokens worth 7 figures. Subsequently, AGLD tokens rose nearly 2 times within a month, and fell by more than 40% on the second day of the high point.
There is a heated discussion in the community. Some people believe that DWF is not a real investment and only takes the currency for market making; others accuse DWF Labs of making profits by manipulating the market. Various controversies and doubts have caused DWF Labs to mention many hot searches in the encryption industry.
BlockBeats: As a marketplace maker or ecosystem partner, does your approach and style of investing differ? In addition to financial assistance, are there other aspects involved?
Andrei：We always do more than just give them money, we have a dedicated entity that invests it for us. Because these are difficult times for projects, even big ones, they are suffering because there is no funding; and the market is too fragile and there is a risk of collapse. In the cryptocurrency industry, it makes sense to invest while providing liquidity to the market.
There is a risk of a market crash, which is why we try to invest in some projects. But projects also need to explain to their communities and investors, what is the rationale behind this? Why dont they go to the exchange? This is also a problem because the situation is completely different. If we do something and we provide some value, thats acceptable and people will generally be friendly to it; however, assuming a project goes directly to an exchange and sells the tokens, it usually looks like a carnival.
Because people know its just to make money and they dont care about the market. But in this case, if there are no investors, no OTC buyers, no market makers, no one accepting the project, why would the average investor hold these tokens? This looks weird and is very dangerous for the project. So were trying to help them.
BlockBeats: Especially in the Chinese crypto industry community, people have been discussing price anomalies in investments, or partners or projects that you work with. For example, sometimes when DWF invests in a project, the price of the project will increase dramatically and then fall back quickly. What do you think about this?
Andrei：We are not involved in any manipulative behavior. When people see some sign that this asset might be profitable, theyre going to rush into it, and the liquidity in the market isnt as good as it was a year ago, and its easily driven by people, by the market itself. Of course we have the futures market and for us that is our tool for hedging our positions and our trading club, we are completely different from directional traders.
For directional traders, lets say you have $100, and then you enter the futures market and open a position with 25x leverage, your position has increased by 25x, right? Suppose the price of the currency increases 10 times, and you start to think, I can use my 100 US dollars to make 20,000 US dollars. People often underestimate risks but are overconfident in opportunities, and then they suffer.
Of course, there is also someone who opens a position completely in the opposite direction, this person will be very happy, someone sends a screenshot showing that money was made, it feels great. This is how the market works. I think people always need someone to bless or blame, and thats us in this market cycle, and it might be someone else in the next market cycle.
BlockBeats: That’s a very interesting point. Do you think it’s an unexpected and good outcome? Like in a way, it will help you implement market-making strategies in the market and get people to follow your investments?
Andrei：Our marketing strategy is completely independent of DWF Labs as we have nothing manual to do. We have our own system, built in 2018, for proprietary trading. It only trades against the market and provides liquidity for some currencies and markets. It is completely independent. When (peoples) mood changes, it adjusts itself and we never plan for it.
First of all, for us, we dont need it, were pretty successful in trading. Since 2018, we have never had a loss. We dont need those things; the second point is, if you look back a few months ago, when markets were calmer, it might have been a completely different story. We remain market neutral at all times and we dont take on this directional risk, which is difficult.
BlockBeats: One more thing I want to ask you is, whenever you announce an investment, most announcements say $10 million, which is very accurate. What are the considerations involved?
Andrei：This is truly an investment strategy. We learned a lot from the first half of the year, when we had some long-term deals, people didnt like it; now were not going to announce anything thats not done yet, and if we announce something, its done. Moreover, if anyone wants to know more, they can ask us or the project party for some transaction IDs and verify them. These are all on the chain. Now were not going to announce anything thats not done yet, even if weve already signed the deal, because were learning and this is our lesson. We wont make the same mistakes twice.
BlockBeats: A lot of people are interested in how you raise money, what is your strategy, and where does the money come from?
Andrei：We had never raised money, we had no investors, we were literally starting from scratch. In 2018, I served as the CEO of Huobi in Russia, before I joined DWF Labs. We only met because they were looking for an opportunity for a suitable exchange account with good rates since they were starting from scratch.
I was the CEO of a local exchange and was in desperate need of traders as this was my key performance indicator. Then we met and I convinced Huobi to provide the best rates for DWF Labs because high frequency trading requires low latency and best rates. It took me two months to convince Huobi’s management, and in April 2018, they agreed. I still remember when DWF Labs deposited $50,000 into Huobi, the trading volume reached $10 million on the first day and $22 million on the second day.
Why can this $50,000 in working capital generate such huge trading volume? (Obviously) It was crazy, and the market was crazy at the time. In the spring of 2019, Binance launched its first issuance platform and the market turned bullish again. Fortunately, in the summer of 2019, I introduced them to Okex and Huobi, and my responsibility was to deal with their partners.
I just help them because I have relationships at various exchanges in China and help them open accounts with good rates. These guys are growing very fast because were making about 15 to 20 basis points of profit on credit volume. You can imagine that you trade 1 million and the profit is 20,000, and you can trade every day.
But of course, the market is becoming more and more competitive and profits are shrinking. But now the profit brought by the trading volume is still a few basis points, and in 2021, many exchanges and projects have been launched, and the trading volume is very large. Historically, weve been very strong in the short market, the volume in the short market is always huge, and weve made a lot of money this year. Now we have our own data center in Switzerland and we have a trading company in the Cayman Islands and we have never raised capital. This gives us some advantages because its not about simply printing money, its about working hard but being able to create so much money. We have several aspects, such as high-frequency trading, where the benefits are like this. Then we have market makers and venture capital.
Should we continue with Crypto or traditional finance?
As a VC in the encryption industry, the projects invested by DWF Labs focus on the encryption industry, but it also has an uneasy and restless heart, hoping to expand into more and a larger range of traditional financial markets. The same is true for Paradigm, a venture capital firm in the crypto industry. In May of this year, some netizens discovered that the homepage title of Paradigm’s official website had changed from “Paradigm supports disruptive encryption/Web3 companies and protocols with as little as $1 million and as much as more than $100 million” to “Paradigm is a research-based company. Oriented technology investment company.
Although Paradigm’s official website has since re-added “encryption” related expressions on the homepage, and co-founder Matt Huang said that the previous deletion was a mistake, the community has still generated a lot of discussions. Some people believe that Paradigm will focus its investment on the generative technology led by OpenAI. In the AI wave. DWF Labs also hopes to put eggs in more baskets before the bull market in the encryption industry arrives on a large scale.
BlockBeats: What are your thoughts on the future market? When profits are not as good as before, have you considered looking for other markets?
Andrei：We have plans and are already expanding our business into traditional markets. For us, we trade symbols, we don’t care if it’s Bitcoin, Ethereum, or something else. We have symbols, prices, volumes, liquidity, we trade based on these, and data. Now we are looking at the Forex market just to trade currencies.
Of course, when it comes to cryptocurrencies, we can only optimize our strategies and wait for the bull run of massive trading. In addition, we have entered the options market since 2020, and we believe that the options market will also be large in the future. We have our own options firm that trades cryptocurrency options. Because in traditional markets, options account for 30-40% of derivatives; in the cryptocurrency market, options account for only 3%. If it expands to 30%, it will grow 10 times. People who excel in this area will make a lot of money, and we want to be that person.
BlockBeats: So, what do you think about the profit prospects of cryptocurrency?
Andrei：Its always about cycles. In this cycle, you can make money through market making, venture capital, and incubation. When you can provide more value to the project, you can exchange for a larger share. High-frequency trading can also generate profits, but it is limited because the trading volume is limited. But I think the next cycle should be better than the last one.
I see a lot of TradeFi companies coming into the market and now they are building probe systems for high-frequency trading, and these are big companies. I think traditional financial institutions are also looking at this opportunity, and while I cant say theyre bullish, they see this as a future opportunity, and they prefer to get involved now and wait, rather than try to jump into this market again when the market is bullish.
BlockBeats: So, for future market cycles, were kind of waiting for Old Money to come.
Andrei：Not all money, because all these bullish cycles, are driven by Asia and emerging countries, its never been driven by Europeans because they dont do a lot of trading. Lets say something happens in the United States, like ETF approval, Bitcoin futures approval, and then it has an impact and the whole world jumps in and creates a bullish market, and thats what were waiting for.
BlockBeats: Another issue is the regulatory aspect. Have you made any plans in advance?
Andrei：We have no investors and no need for excessive regulation. We already have a license and we are looking for an audit firm in Dubai as some projects and clients require us to provide all balance sheets. But you know, for pure high-frequency trading, we dont want to do that because all the high-frequency trading companies, their costs are very high.
Lets say, as we speak, hundreds of transactions are taking place every second; when these companies all need to review all of those transactions, it requires a lot of documentation. If we wanted to audit high-frequency trading, it would cost us $10 million to $20 million a year, but we dont need to. We have applied for a British Virgin Islands VASP license and will receive it soon.
