DWF Labs has a poor reputation in the cryptocurrency industry due to its market manipulation practices, but it continues to collaborate with many projects. Many retail investors are attracted to its investment and market-making projects, but what is the reason behind this? This article, sourced from Jinse Finance, provides insights into DWF Labs’ activities.
DWF Labs, known as the “VC + Market Maker,” has gained a prominent position in the industry over the past two years. However, industry insiders believe that DWF’s venture capital activities are just a facade, and its true intention is market manipulation.
Market makers are not inherently bad actors. They provide liquidity and facilitate trades by narrowing bid-ask spreads. In traditional finance, market makers are subject to regulation, which makes malicious activities costly. However, in the unregulated cryptocurrency industry, the cost of wrongdoing for market makers is relatively low.
In a chaotic industry, success and strength are often measured by financial gains. Despite DWF Labs’ negative reputation, many projects continue to seek collaboration with them, and retail investors are drawn to their investment and market-making projects.
However, solely blaming DWF does not provide a comprehensive understanding of the industry’s dynamics. To truly understand how “bad actors” succeed in this industry, it is necessary to study their strategies and practices.
DWF Labs was established in June 2022, during a bear market in the industry. Before venturing into market-making and investment, DWF’s parent company was a high-frequency trading firm.
DWF Labs emerged after the FTX scandal. Following the FTX incident, several top platforms suffered heavy losses, with market makers and lending platforms being hit hard. Alameda, one of the largest market makers in the cryptocurrency industry, was devastated, and DCG’s market maker and lending company, Genesis, faced insolvency issues.
During this market confusion, DWF provided liquidity to many small and medium-sized projects, offering hope to both projects and the industry as a whole. As a result, DWF quickly rose to prominence, surpassing the achievements of other market makers in just two years.
DWF’s predecessor, VRM, was founded by Andrei Grachev, who previously worked for Ulmart, a Russian e-commerce platform often referred to as the “Russian JD.com.” Grachev entered the cryptocurrency market in 2017 and established an organization called Crypsis Blockchain Holding in Moscow. He joined the Russian Association of Cryptoeconomics, Artificial Intelligence, and Blockchain as Deputy Director of Trading in May 2018. In September 2018, he became the CEO of Huobi Russia and joined DWF in December of the same year. In 2019, Russian media reported his association with the OneCoin cryptocurrency Ponzi scheme, involving $4 billion.
According to insider sources from Huobi, Grachev was no longer authorized to represent Huobi Russia due to competency and ethical concerns.
During the bear market, DWF’s strategy was simple. They primarily chose old or struggling projects, or those heavily influenced by information and emotions. When collaborating with these projects, DWF often bought tokens at a discounted price, promising to boost the token’s price. However, their modus operandi involved pumping the token price and then dumping it, causing a significant drop from its peak value. Their so-called “investment” was essentially market-making. This approach resulted in a win-win situation for the projects and DWF, as retail investors bought the tokens at high prices.
In April of this year, Andrei Grachev announced on X that DWF Labs had invested in over 740 projects, with significant growth in investments since November 2023. During the bear market, DWF made substantial investments, including a $60 million partnership with EOS, a $13.8 million investment in YGG, a $40 million investment in Fetch.ai, a $10 million investment in TON, a $10 million investment in Conflux, and a $331 million investment in RS.
However, these investments were evidently inflated. An institution involved in project incubation and investment stated that it is common for investment institutions and projects to collude and overstate investment amounts for promotional purposes.
According to Twitter user @nay_gmy, who conducted blockchain data analysis, only $65 million of the announced investment amount by DWF Labs could be verified on-chain, despite DWF claiming to have invested over $150 million.
In the current bull market, it seems that DWF Labs’ investment and market-making strategies have evolved. They are no longer focused solely on struggling projects but have also invested in popular and attention-grabbing meme coins. Furthermore, DWF has started supporting specific industry initiatives, expanding its business scope.
DWF’s relationship with Binance also appears to be close. It is rumored that DWF is the market maker for three Binance Launchpool tokens: NFP, XAI, and PROTAL. The Wall Street Journal previously reported that Binance’s monitoring team discovered evidence of market manipulation by DWF. Interestingly, after this information was exposed, Binance fired the head of its monitoring team, indicating a deep-seated vested interest between DWF and Binance.
Undoubtedly, DWF has rapidly grown into a top institution in the industry. Despite the constant criticism from retail investors, most projects in the industry align their interests with DWF. According to data from PitchBook, DWF Labs is the top cryptocurrency venture capital institution in terms of transaction volume for 2023.
As DWF Labs expands its investment and market-making activities, it is also diversifying its business scope. For example, in its partnership with TON, DWF not only aims to increase liquidity for TON’s native stablecoin but also intends to help TON improve its enterprise services. DWF Labs has also participated in node verification for AirDao, launched a proof-of-stake node on Conflux, and joined the modular Layer1 Self Chain as a validating node.
Andrei Grachev’s statement earlier this year suggests that DWF Labs aims to transition from being a market maker to becoming an industry builder. They have heavily invested in the gaming sector by strategic investments in MOBOX and game publisher Sidus Heroes, as well as a metaverse blockchain game project called SIDUS HEROES.
Another area of interest for DWF is meme coins, as evidenced by their involvement as market makers for many meme coins. After accumulating substantial wealth, DWF is attempting to rebrand itself and transform from a “market maker” to an industry builder.
Such transformations are not uncommon in the industry. Institutions that once exploited retail investors are now positioned as compliant and influential players, and organizations that previously outsourced whitepapers are now responsible for the highest stablecoin issuance on public chains.
Capital indeed holds significant power. However, assuming these institutions, now wealthy from their exploits, genuinely commit to industry development rather than disappearing, it can be seen as beneficial for the industry’s progress. Nevertheless, for retail investors who follow these large-scale operations, they are often the ones who suffer the most.