Original author: YuukiJill, LD Capital

introduction

Since the beginning of this year, DWF has become famous, large investments have continued, and its related tokens have doubled in value. How can DWF do this in the current bearish stage of the crypto market? How should secondary market investors participate in related targets?

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DWF Labs is an affiliate of Digital Wave Finance (DWF), a global cryptocurrency high-frequency trading company that has been conducting spot and derivatives trading on more than 40 top trading platforms since 2018. When DWF Labs first appeared in the crypto market, it acted as a market maker. The real attention of the market to DWF began with Hong Kong concept coins such as CFX and ACH that exploded in the first quarter. In the second quarter, PEPE, LADYS and other coins increased dozens of times. MEME currency, and then the recent YGG, CYBER, etc. have increased several times on the target. Among them, CFX, ACH and YGG obtain coins for OTC. PEPE (MEME), LADYS (MEME), CYBER (Binance Launch Pool) and other coins have good chip structures, and DWF directly affects the price through secondary market purchases.

Some DWF-related tokens have increased several times to attract market attention

The reason why DWF has attracted market attention is not only the large price fluctuations of the currencies it handles, but also the discord with other peers. Well-known market makers Wintermute and GSR have expressed their dissatisfaction with DWF in public, believing that it is an inferior market maker and a bad actor.

Breaking down DWF’s business scope

In the crypto market, investment and market making are usually two distinct concepts. Investment usually refers to injecting funds into the team to support project development, operations, marketing, etc. before the project sells tokens. As a reward, you will receive lock-up period after the project goes online. Token share; and market making aims to build good liquidity for the tokens that have been sold, reduce transaction costs, and attract more traders. The income from investment behavior comes from the token return of the invested project, and the income from market making behavior comes from the market making fees paid by the project party and the spreads (buy-sell spreads) earned in the market making process; well-known investment institutions in the encryption market Such as A16Z, Paradigm; well-known market makers such as Wintermute, GSR, etc.

DWF has been criticized by crypto market participants because it often confuses the concepts of investment and market making. It positions itself as a Web3 venture capital and market maker on its official website. Its business types are divided into three types: investment, OTC and market making. city.

Judging from the past performance of DWF-related targets, its selection of targets is mainly based on emotional themes, and the market-making currencies include CFX, MASK, YGG, C 98, WAVES, etc. However, a study of its past market-making cases reveals that few of them actually support the long-term development of projects. DWF usually chooses to inject funds into distressed projects that have already issued coins to obtain coins at a discount, and then sell them in the secondary market to make a profit. Moreover, in this process, they often violently sell the projects they invest in. In addition to selling coins at high prices, they also establish a money-making image for themselves in the minds of retail investors, and then continue to sell this image advantage as products to projects. For example, by jointly disclosing large-amount investment information with project parties, creating favorable conditions for the market and attracting liquidity to better sell currency for shipment.

Surface business: investment, market making, OTC, marketing

The essence of the business: Inject funds into difficult projects, get coins at OTC discounts, and sell them in the secondary market for profit; violently pull offers to build a brand image, and continue to sell them to project parties as products.

Specific cases are as follows:

1. YGGC 98: Buy coins OTC, pull orders and ship in the secondary market

On February 17, 2023, the chain game guild Yield Guild Games (YGG) has raised US$13.8 million in funds by selling Tokens, with DWF Labs and A16Z leading the investment (YGG has already issued tokens as early as 2021).

It is worth noting that DWF Labs received 8 million YGG from the YGG treasury on February 10, and transferred 700,000 YGG to Binance for the first time on February 14. On February 17, the media reported investment information. Subsequently, DWF transferred 3.65 million pieces to Binance twice on June 19 and 3.65 million pieces on August 6. Combined with YGG price performance: On February 17, affected by investment information, YGG had a maximum increase of 50% that day and closed up 33%; then it began to decline for 5 and a half months until the pull-up market started in early August this year. It rose more than 7 times from the previous low. At the end of the market, DWF transferred the last YGG token to Binance.

As a secondary market investor, you can observe anomalies in contract data at the beginning of the YGG market. In the early stage, YGGs contract data showed a sharp increase in positions and stable interest rates; in the mid-term, it showed a slowdown in the growth of positions and a decrease in interest rates; in the later period, it showed a decline in positions caused by the liquidation of long positions.

Similar trading techniques can also be observed in targets such as CYBER: On August 22, DWF proposed 170,000 CYBER from the Binance exchange. At that time, the price of CYBER was about US$4.5, and then the price continued to fall, with the lowest falling to US$3.5; Seven days later, CYBERs rising market started, rising to a maximum of $16.2, which was about 3.6 times higher than the price at the time of DWF withdrawal, and about 4.6 times higher than the previous low of CYBER. CYBER, as a Binance Launch Pool project, has a good chip structure in the early stages of its launch and little selling pressure in the secondary market. DWF’s participation in CYBER’s project is inferred to be a matter of buying and selling coins in the secondary market, with less involvement in the relationship with the project side. (Similar to DWF’s participation in Meme coins such as PEPE and LADYS in the second quarter of this year)

At the level of capital data, CYBERs performance is similar to that of YGG: contract data shows a sharp increase in positions and stable interest rates in the early stage; it shows a slowdown in position growth and a decrease in interest rates in the mid-term, and it shows the liquidation of long positions in the later period. brought about a decrease in positions.

On February 2, 2023, the DWF chain address received a transfer from the Coin 98 official address, totaling about 4.12 million coins, which was approximately US$1.11 million based on the market price on that day (the C98 secondary market price on that day was approximately US$0.27), and then immediately Transferred to Binance Exchange; on August 8, Coin 98 announced that it had received a seven-digit investment from DWF Labs to promote the large-scale adoption of Web3; on October 12, according to media reports, DWF transferred 1 million USDT to C 98. Combined with the price performance of C98, after DWF received the tokens and transferred them to the exchange, C98 rose briefly and then entered a five-month decline. On August 8, the media published an article and the price increased by 58% in two days compared with the previous low. A rapid decline followed. Looking back at this incident, the essence may be that DWF took coins at a 90% discount from the C98 project, and then sold them in the secondary market to make a profit.

The data of C98 in the early stage of the rally showed a substantial increase in positions. The end of the market was marked by the decrease in positions caused by the liquidation of long positions and the return of interest rates.

Targets similar to pulling techniques include LEVER, WAVES, CFX, MASK, ARPA, etc.

The above are the recent typical DWF trading targets. It can be seen that DWF usually participates in both the contract and spot markets. In the early stage of the market, a large amount of funds will be observed pouring into the contract market. Since the main funds are long in the early contract, the position increases. At the same time, it will not affect the rates; in the mid-term, it usually manifests as spot pulling, and the main contract bulls begin to close their positions. This stage often manifests as spot prices skyrocketing, contract negative rates are serious, and the growth of positions stagnates or declines; some targets will also have The last wave of pulling up and creating liquidity allows the main spot to obtain better shipping prices and liquidity. For some targets, the market will end directly after the main long positions of the contract are closed and profits are made. The key is to judge the final stage for the main force. Will the income generated by the continued rise of spot prices be greater than the cost? (For example, whether there is a key pressure level above and whether there is a large amount of selling pressure on the market)

2. Marketing-style investment, on-chain transfers, using brand image to create benefits to conceal the nature of shipments

As a new investment institution, DWF frequently makes moves in the bear market. DWF has cooperated with more than 260 projects. According to media reports, DWF has invested in more than 100 projects, many of which are large investments. In summary, projects with investments exceeding US$5 million include:

DWF Lianchuang Grachev said that DWF Labs has no external investors, but its high frequency and large investments not only make the market question where its funds come from. Moreover, most of the projects it invests in are not industry trend projects, but mostly old projects with average or poor fundamentals (such as EOS, ALGO, etc.); the projects product development, marketing, and community cooperation have not improved after it announced its investment. . It is judged that some of DWFs actions may create benefits for marketing-style investment to attract retail investors, and repeatedly speculate on currency prices in the secondary market so that the team can sell tokens. (FET announced an investment of US$40 million, and so far DWF has only received approximately US$3 million in tokens)

In addition, on September 8, the address on the DWF chain received a PERP transfer from Binance. Previously, PERP had increased several times. After DWF experienced currency withdrawals on the exchange, PERP buying orders increased significantly, and the currency price briefly increased. Large amounts were sold and entered the downward channel, and the market ended.

On October 17, BNX announced a strategic cooperation with DWF. Previously, BNX experienced a sharp rise for a week and quickly crashed after the information was released. There is a high probability that there is insider trading, using the brand effect of DWF to release news to create liquidity for shipments.

There are many examples of project parties and DWF using their brand influence to create favorable conditions to attract liquidity shipments. Secondary market participants need to carefully screen when seeing information related to DWF. The prices of many DWF-related targets continue to fall, such as EOS, CELO, FLOW, BICO, etc.

3. Look for “difficult” projects and use bargaining power to maximize profits when financing is difficult in a bear market.

Abracadabra (SPELL) is a stablecoin project that uses interest-earning asset certificates (such as stablecoin LP in Curve, stablecoin deposit certificates in Yearn, etc.) as collateral. After experiencing the explosion of UST (UST was once an important underlying asset of Abracadabra, After the UST explosion (Abracadabra accumulated a large number of bad debts) and the shrinkage of the market value of stablecoins in the long bear market, the protocol TVL and currency prices continued to slump, making development unsustainable. It passed AIP #28 proposal on September 14, which included the introduction of DWF as SPELL’s market maker. The following market making terms were signed: 1. Abracadabra provides DWF with a SPELL loan of US$1.8 million for a period of 24 months; 2. DWF will purchase US$1 million of tokens from DAO at a discount of 15% of the market price. The share is locked for 24 months; 3. Abracadabra pays DWF a European call option with an exercise date after the end of the loan period as a market-making fee.

In these market making terms, the price paid by the Abracadabra project side is significantly higher than other market making projects in the industry, including discounted currency purchases and European options. Since the market making terms include buying coins at a discount from the market price, from DWFs perspective, short-term low currency prices are conducive to maximizing its interests; combined with market performance, the price of SPELL has plummeted since DWF entered the market. details as follows:

The proposal started voting on September 11 and was passed on September 14. Affected by this information, the price of SPELL rose from the low of 0.0003716 on September 11 to the high of 0.0006390 on September 19, with a maximum increase of 72 % (market hot money speculation).

On September 19, Abracadabra provided a 3.3 M SPELL loan to DWF, which was subsequently transferred to Binance. SPELL entered a downward channel and is currently quoted at 0.0004416, which has dropped 31% from the previous high.

It can also be seen from the capital data that in SPELLs short-term market, the consistency of funds is very poor. 70% of the increase has a multi-stock capital relay, which is highly uncertain.

To summarize:In its early days, DWF built its brand image by creating a wealth effect through market pull. It was itself a product of the bear market under weak supervision. It took advantage of the development difficulties of the project team in the bear market and the psychology of retail investors in the market to achieve profits from both ends. Project parties in bear markets generally face difficulties in monetization and financing. Direct sales of tokens will undermine fragile market confidence, seriously negative token prices, and affect the project ecology. In this case, DWF appears as a bridge for project parties to sell coins, helping project parties ship through OTC or other marketing means. For example, if the behavior of OTC tokens in the hands of the project party is described as a strategic investment, in fact, it is not observed that it provides substantial help to the long-term development of the project and instead sells the tokens; the project party is concealed through its disguised exit through promotional packaging. The nature of goods, DWF has also achieved profits for both project parties and users in this process.

As a secondary market investor, after seeing information about a project cooperating with DWF, you first need to distinguish what business it belongs to DWF (secondary investment, OTC, market making, marketing), and use different strategies for different businesses. In past market performance:

1. Targets that DWF directly participates in secondary market investment need to focus on. Such targets are usually listed new coins or Meme with good chip structure;

2. When DWF buys coins from the project party OTC (packaged as strategic investment), the secondary market price often first shows a decline for several months, and then rapidly pulls up the market. After DWF recharges the currency to the exchange, the market ends (pull-up). The market situation usually does not exceed 1 week);

3. DWF’s real market-making projects do not have doubling market prices, but they usually attract hot money speculation and have a short window for building a position. If you seize it, you can be one step ahead;

4. The market winning rate and profit and loss ratio caused by DWF-related marketing news are poor. The logic behind it is that stakeholders use DWF’s current market influence to attract liquidity to sell goods.

After it is judged that DWF is willing to pull the market, the sharp increase in contract positions and spot trading volume is a signal that the market has started; the interaction between the address on the DWF chain and the exchange address (high price), the decline in positions, and the extremely negative rate of funds often mark the end of the market.