Author: 0x26, Luccy, BlockBeats

Editor: Jaleel, BlockBeats

Over the weekend, some retail investors and market makers just experienced a "war". On the Korean exchange Upbit, the price of Cyber was pushed up to $37, with a premium rate of 167%. On the Binance platform, the price of CYBER was temporarily reported at $13.8. CyberConnect released an emergency proposal [CP-1] to unlock 10.88 million CYBER, equivalent to $300 million, which is a staggering amount. Under the community's panic, the official claimed that there was a data editing error, and the actual unlock amount was 1.08 million CYBER.

Last night, a KOL in the cryptocurrency industry shared their painful experience on social media, which resonated with many. Due to the astonishing rise of Cyber, they repeatedly shorted and went long, ultimately resulting in a loss of millions. BlockBeats has compiled the events and the market maker logic reflected and represented by DWF behind CYBER.

CYBER Farce: The Beginning and End

As the only token issued by CyberConnect, CYBER was publicly sold through CoinList on May 18th this year. In just three months, the opening price has tripled. On August 21st, Binance launched CYBER 1-20x U perpetual contract, followed by Upbit, a Korean cryptocurrency exchange, which launched CYBER on August 22nd.

On the day that CYBER was listed on Upbit, DWF Labs increased its holdings of 170,000 CYBER at an average price of $4.5 from Binance, which is approximately $770,000 according to Lookonchain. It is calculated that the value of this increased holding of CYBER rose to $1.26 million on August 30th.

One-way premium CYBER

This "war" between retail investors and market makers officially began on August 31st.

At that time, the Upbit trading platform wallet address held approximately 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, worth approximately $360,000, to the South Korean cryptocurrency exchange Bithumb.

On September 1st, the farce escalated as the price of CYBER on Upbit was over 30% higher than the price on Binance. Within 24 hours, DWF transferred 170,000 CYBER tokens to Bithumb, worth approximately $1.46 million.

On September 2nd, the farce reached its climax. The Upbit wallet held 3.947 million CYBER, the highest amount. The price of CYBER on mainstream CEX continued to rise, and the price on Upbit continued to be at a premium, rising from 30% to 167%, with a price of $37.1.

One user, 87% of the vote

CyberConnect has officially released an urgent proposal [CP-1] in response to the current situation, hoping to unlock 10.88 million CYBER tokens in advance to ensure liquidity balance across Ethereum, Optimism, and BNB Chain networks.

Due to the time constraints and urgency of the proposal vote, CyberConnect did not comply with the DAO's 7-day voting policy and the vote 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 CYBER have been transferred out, with most of them flowing into Binance.

Although CyberConnect officially announced on September 3rd that there were editing errors in the data of emergency proposal [CP-1], and the actual unlocking amount was not 10.88 million tokens but 1.08 million tokens, and quickly abolished the proposal, security measures will be introduced to ensure that similar incidents do not occur again.

However, it is clear that the panic, uncertainty, and questioning surrounding CYBER in the market have already fermented. At the same time, the community has discovered that the emergency proposal [CP-1] has highlighted the issue of centralization in the project. According to the vote count displayed on snapshot, only one user has cast a vote that accounts for 87% of the total votes.

This reflects not only the centralization problem of individual projects, but also the fact that in today's crypto community, so-called DAO organizations have hardly considered governance issues. Emergency proposals are passed with 87% of the vote from a single user, only to be closed later due to "data editing errors".

No wonder the community has expressed the feeling that "the so-called DAO organizations in China have almost no governance, and basically just play house."

DWF: A Composite Operating Model of "Investment + Market Making"

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

From the launch day price of $4.5, to the peak of $37.1 (a 167% premium over Binance), and then to the drop to $12.55 (a 14% premium), in this strange process of skyrocketing and plummeting, one side is constantly refreshing the expected increase and premium, while the other is the red line that quickly arrives but is uncertain when it will appear. Perhaps there are many people who can see the traces of market makers behind it, but more people are still attracted by its crazy increase and become liquidity providers in Pump and Dump.

According to BlockBeats' previous introduction, DWF is a global high-frequency cryptocurrency trading company that has been conducting spot and derivative trading on more than 40 top trading platforms since 2018, ranking among the top 5 in global cryptocurrency trading volume.

DWF Labs previously stated on its official website that "regardless of market conditions, DWF Labs invests in an average of 5 projects per month." Since March, DWF Labs has indeed been buying up assets in the secondary market at a rate of 5 projects per month, which has sparked heated discussions in the community. Some believe that DWF is not really investing, but rather just making a market. DWF Labs partner Andrei Grachev responded by saying, "In addition to investing, we usually provide additional support," which can be seen as acknowledging this "investment + market making" hybrid operation mode. The official website also directly displays the signboard for providing such services.

DWF Labs has clearly stated that it is a global digital asset market maker and a web3 investment company involved in multi-stage project development. It is also engaged in high-frequency cryptocurrency trading and is currently trading in spot and derivative markets on more than 40 top exchanges. DWF Labs also mentioned 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, trading over 800 currency pairs, including spot and derivatives.

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

When it comes to choosing market-making currencies, DWF Labs differs from Wintermute, which focuses on fundamentally sound European and American blue-chip projects. DWF Labs primarily targets East Asian projects and various new and old emotional themes. Many institutions and investors have begun to regard tokens such as YGG, DODO, and C98 as the market-making norms of DWF Labs, and have created their investment layouts for the currencies that have not yet risen.

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

It is said that Gamefi is dead, but at the beginning of last month, YGG (Yield Guild Games), a guild-based project founded on Gamefi, performed a "Mario jump" after launching on major mainstream trading platforms such as Binance, OKX, and Bybit.

6 days rose nearly 5 times, and immediately fell 60% within 4 hours, causing a market-wide liquidation of over 10 million US dollars.

Although there is no direct evidence that DWF participated in the looting activity, the on-chain wallet marked as DWF did receive YGG tokens from multiple on-chain institutions. Additionally, in February 2023, DWF did co-lead YGG's $13.8 million financing round through the sale of tokens. In February 2023, DWF Labs and a16z co-led the investment in Yield Guild Games (YGG), a blockchain gaming guild, raising $13.8 million through the sale of tokens.

Starting from August 6th, DWF Labs has been releasing financial decision news about YGG, DODO, and C98 successively, which has prompted the continued rise of the three currencies that have already risen. 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, with YGG having the largest drop of about 70%.

And the most intuitive feeling is undoubtedly the recent tweet from Andrei Grachev, managing partner of DWF. Andrei, who rarely posts, has posted two tweets about YGG. The first one on August 6th congratulated YGG on its listing on Binance and analyzed the trading depth and order situation of YGG tokens.

Shortly after YGG's sharp decline, Wintermute CEO, who had previously had a gap with DWF, responded to Andrei's tweet in a mocking manner.

Reference reading: "DWF Labs and Wintermute cross-border confrontation? A list of the two major market-making projects".

Of course, there are some differences between the CYBER incident and YGG, and it seems that dwf did not directly manipulate the CYBER incident, but played a role in moving bricks or insider trading, which is different from the nature of the YGG incident.

"Pull first, then smash" - DWF's market-making strategy

Although DWF once heavily promoted itself as being able to protect projects from the threat of "pump and dump" price attacks and extreme price fluctuations, there have been several instances of "pump and dump" within DWF's investment portfolio, aside from the controversial YGG.

After these projects were invested by DWF, the "pull first, smash later" incident occurred within only one month, taking ARPA and Agld as examples.

On April 25th, DWF announced its investment in ARPA Network. Subsequently, the price of ARPA token doubled within a month and then dropped nearly 40% on the day of its highest price. During this period, the holding amount of ARPA token on mainstream trading platforms surged, causing a large number of liquidations. The holding amount returned to normal after a period of time following the price drop. The marked area in the following figure indicates the time of the investment announcement.

Data source: Coinglass

On June 22nd, Adventure Gold DAO announced that it had received investment from DWF, which committed to purchasing AGLD tokens worth seven figures. Subsequently, within a month, the AGLD token rose by nearly 2x and then dropped by over 40% on the second day at its peak. Similarly, during this period, the AGLD token's holdings on mainstream trading platforms surged, triggering a large number of liquidations. The holdings returned to normal after a period of time following the price drop. The marked area in the following figure indicates the time of the investment announcement.

Data source: Coinglass

It is worth noting that AGLD has made a comment on this matter, seemingly implying something.

"Around July 22nd, the top 3 accounts on Bybit's 24-hour leaderboard all joined within the past 5 days and only traded AGLD, earning profits in the seven figures. From this, we can speculate who did it..."

And corresponding to the skyrocketing and plummeting of YGG, ARPA, and Agld is the confusion of the community. Taking Agld as an example, despite its 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 happened...

Market Response: Don't Trade 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 performance of YGG, DODO, C98 and other previously market-made currencies have verified the business level and service quality of DWF Labs.

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

What can be seen is that DWF Labs has already made markets for two of them, YGG and C98, but it is unknown whether the next volatile currency will be in its recently invested projects.

As a retail investor in the cryptocurrency industry, our attitude towards market makers is very complicated. On the one hand, the cryptocurrency industry needs the existence of market makers, and the mechanism of token market makers itself is not malicious. The problem is that these mechanisms usually do not disclose information to retail investors.

On the other hand, the existence of market makers has caused significant losses for retail investors. Returning to the tweet with over 60,000 views mentioned at the beginning of this article, the retail investor KOL who lost millions of dollars wrote at the end of the tweet, "Don't go against the market makers," which serves as a warning to everyone in the cryptocurrency industry.

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