The Block: Uncovering How Cryptocurrency Market Maker DWF Labs Rose to Prominence

Original Title: 《 The origin story of crypto trading firm DWF Labs 》

Author: Tim Copeland, The Block

Translation: Elvin, ChainCatcher

Abstract:

1. At the beginning of 2023, DWF Labs emerged, seemingly investing hundreds of millions of dollars among hundreds of cryptocurrency companies.
2. But where did this company come from, and how did it acquire such abundant cash reserves?
3. This article delves into the company's history, providing insights into its development over the past five years and its close ties with two mysterious Swiss high-frequency trading firms.

In 2018, Andrei Grachev faced a tricky problem.

At that time, Grachev was still somewhat unfamiliar with cryptocurrency. According to his personal resume recorded in company documents, he was born in Uzbekistan, studied organizational management at Orenburg State University, and then worked as an oil trader for two years. In 2016, he entered the cryptocurrency space by running a small mining operation and engaging in some personal trading. Two years later, at just 30 years old, he became the CEO of Huobi Russia. His only problem? He later told BlockBeats that he was in urgent need of trading volume.

A lawyer known to Grachev provided him with a solution. The lawyer mentioned that a small high-frequency trading (HFT) firm in Switzerland was seeking low rates from exchanges (according to Grachev's recent interview with the Steady Lads podcast), which would significantly impact its trading profitability.

Grachev seized the opportunity, but it brought another problem. Huobi Russia was the local exchange officially authorized by Huobi Global (now known as HTX) through its cloud program. According to an informed source, this meant it could use its brand, software, and trading liquidity. However, major decisions had to be approved by headquarters, such as token listings and customer trading fee rates. Grachev told BlockBeats that it took him two months to persuade the exchange to allow him to offer favorable rates to the Swiss HFT firm, enabling it to access Huobi's liquidity cheaply through a Russian intermediary.

The HFT firm initially deposited $50,000, but by the end of the day, its trading volume had reached $10 million. The next day, that number rose to $22 million. "It was crazy," Grachev said in an interview with BlockBeats.

Andrei Grachev speaking at an event hosted by Huobi Russia. Image: Huobi Russia.

On December 8, 2018, when Huobi Russia officially launched, Grachev unsurprisingly publicized the recent trading volume, attributing it to the high interest and participation from the Russian community.

At that time, Grachev did not know that this was just the beginning of a strong partnership between the two parties, which would ultimately lead him to co-create one of the most influential and controversial companies in the cryptocurrency space, impacting over 400 projects and reportedly spending hundreds of millions of dollars. This company would elevate Grachev's profile and attract scrutiny from the entire cryptocurrency community. The company would later be known as DWF Labs, and this is its origin story.

2018-2019: The Early Stages of Digital Wave Finance

Three days after the official launch of Huobi Russia, this high-frequency trading firm was legally registered in Zug, Switzerland, 2,500 miles away. Company records show that it was named Digital Wave Finance, with the established purpose of market making and proprietary trading.

According to an informed source, the HFT firm was operated by brothers Marco and Remo Schweizer and Michael Rendchen. All three were traders who had closely collaborated at the market-making firm IMC Trading and were proficient in automated trading strategies. Their goal was to apply these types of strategies to cryptocurrency.

Marco Schweizer is someone who rarely posts personal photos online. According to insiders, he is of medium build, has dark hair, and holds a PhD in physics from ETH Zurich (the university declined to comment). They describe him as money-driven, with a strong desire to become a billionaire.

The logo of Digital Wave Finance. Image: Digital Wave Finance.

The insider stated that Remo Schweizer resembles Marco but is slimmer and often wears a baseball cap to cover his thinning hair, and noted that he had previously studied computer science. As for Rendchen, according to his LinkedIn profile, he is a native Polish and German speaker, and his profile photo shows he has dark hair and a thick beard.

Throughout 2019, as the business expanded, Digital Wave Finance continued trading on Huobi Russia.

In December, an independent entity named Digital Wave Assets was established in Zug, with early board members including Remo Schweizer, Rendchen, and former board member Louis Bisang. According to internal information seen by The Block, shortly after its establishment, Marco Schweizer stated that the company was responsible for managing funds from third parties.

Reports indicated that at that time, Digital Wave Finance had received millions of dollars in interest from third parties, but the trading firm initially rejected external funding as its own capital had reached capacity. The company later publicly stated in financing presentations that it had no external investors.

Bisang left Digital Wave Finance in June 2020. That year, Digital Wave Assets transformed into an asset management and securitization company named Digital Waves, with Bisang serving as chairman according to his LinkedIn profile and company records. According to the self-regulatory organization VQF's website, the entity was later regulated by VQF.

"We have heard of Digital Wave Finance/DWF Labs, but the individual shareholders have limited connections with these two companies. Digital Wave AG (DWA) has never had any active business, collaboration, or transactions with DWF/DWF Labs," said Tobias Straube, COO of Digital Waves.

2019: Facing Multiple Allegations

During this period, Grachev had a challenging year.

In February 2019, Grachev spoke at an event organized on the DealShaker platform, which was closely linked to the $4 billion pyramid scheme OneCoin. According to a local media article from Forklog, which was confirmed by a Russian-speaking spokesperson through Google Translate, this event was held after a previous meeting that Grachev described as a training workshop. Grachev told the media that he was unaware of the platform's connection to OneCoin at that time.

In April, Forklog published a second article mentioning a video call with OneLife (one of the companies behind OneCoin). It was reported that in a prior YouTube video, Grachev stated that negotiations for listing OneCoin on Huobi had been ongoing for nearly a month, and he was confident of reaching an agreement in the second quarter of that year. Grachev told Forklog that the exchange had not received any applications or documents for listing the token but did not comment on his statements.

In the second article, Grachev also faced allegations that he failed to repay a $10,000 debt to an asset management company owner and that he had not repaid investors for his 2018 ICO project named Export.Online, which was described as a "qualitative leap" in development.

According to a recent interview with Foresight News, by September, Grachev was no longer the CEO of Huobi Russia, although he continued to work there as a partner for a year. According to a press release at the time, Vladimir Demin succeeded him as CEO.

Image: Jiamix

During his tenure at Huobi Russia, Grachev met Zac Zou, the regional marketing director of cryptocurrency exchange OKEx (now known as OKX). On September 15, Grachev launched a similar cloud-based local exchange, this time in partnership with OKEx. According to CoinMarketCap, the exchange was named Jiamix and was also headquartered in Moscow. Its website described it as "an exchange for new opportunities," and the marketing copy stated that it would shake up the cryptocurrency world. An OKX spokesperson recently told The Block that Jiamix was a broker and was never part of or a branch of OKX.

The exchange would close two years later.

2020: Establishment of Darley Technologies

In 2020, Digital Wave Finance further expanded its reach into the Korean market and Japanese exchanges.

According to Florentin's interview with liquidity network Paradigm last year, around this time, Marco Schweizer called his former IMC colleague Clement Florentin to ask if he would be interested in collaborating. Florentin, who was born on the French west coast island of Ré, known for its donkeys in pajamas, is an experienced quantitative trader, although he was not focused on cryptocurrency at the time.

Florentin flew to Switzerland, where the Schweizer brothers had established what Florentin referred to as the "Facebook house." It was a chaotic place with dogs running around, where you could choose a bed, find a spot for your laptop, and start coding. A person who visited the house described it as being located south of Zug, and the whole situation could be summarized by a URL on the intranet that included the term "dog house."

"In the beginning, we all lived and worked together in the same big house. It was a bit strange," Florentin said in the interview.

There, they decided that Digital Wave Finance would continue to focus on spot and futures trading, while Florentin would establish his own brand, Darley Technologies, focusing on options trading, special derivatives, and request for quotes (RFQ)------a way to obtain quotes from multiple liquidity providers. Florentin hoped to be able to solicit quotes from third parties and establish his own trading platform.

"That's why we have two brands, but the teams are somewhat similar," he said in the interview, noting that they could be seen as sister companies. "For us, we have two names, but we don't see it that way. We do see it more as one big family."

2020-2021: Building Closer Ties

By the end of 2020, Digital Wave Finance had begun to show results.

According to a profit and loss statement seen by The Block, this HFT firm operated on over ten exchanges, including two associated with Grachev: Huobi Russia and Jiamix. Documents indicated that while it primarily saw results on Binance and Huobi's futures platforms, it generated over $1 million in profit in September.

Over time, it accumulated a substantial reserve of earnings. "Early successes allowed us to secure $50 million in capital," said a person familiar with the company's operations.

Jakub Rehor, co-founder of cryptocurrency trading company Lucy Labs, pointed out on GitHub that in December of last year, Huobi Russia closed, replaced by an exchange named CDAX, which continued to provide Huobi's liquidity in Russia. Grachev later told Foresight News that he sold "Huobi Russia" back to Huobi for a "considerable profit."

It was at this time that Grachev's ties with Digital Wave Finance became closer. Just before Huobi Russia closed, Grachev established a Latvian entity named Vroom and launched a website called VRM Trade (according to two other documents, the project was sometimes referred to as Vrooom).

"We started communicating and became friends," he later said on the Steady Lads podcast. Grachev recalled that due to his connections in China, he helped Digital Wave Finance integrate with other exchanges and received corresponding fees. Through the joint venture, the HFT firm was responsible for token trading on major exchanges, while Grachev handled interactions with exchanges and token trading on smaller exchanges.

Grachev later described VRM Trade as a "synthetic brand" of Digital Wave Finance in an interview with The Block in April 2023. In LinkedIn and interviews, Grachev stated that VRM Trade was established in 2018, concurrently with Digital Wave Finance. Its website claimed an average daily trading volume of $9 million in 2018, $440 million in 2019, and $1.7 billion in 2020------all trading volumes clearly belonging to Digital Wave Finance, as VRM Trade had just been launched.

However, VRM Trade still had its own blueprint. One of its main strategies was to incubate other trading firms and scout talent. It would offer Digital Wave Finance's low rates at exchanges, along with some capital, with any successful case leading to the joint venture providing 30-49% of the company's shares to VRM. "What is a positive outcome? It's simple. It's profit, nothing else!" the website stated.

This was undoubtedly a lucrative proposition. By this point, Digital Wave Finance was operating on more exchanges, and the overall level was high. According to an internal document seen by The Block, it held a VIP 7 level on Bitfinex and OKEx and had negative maker fees on at least seven exchanges. A person familiar with its operations stated that its trading volume was so high that even at the lowest rates, it had to pay hundreds of thousands of dollars daily on Huobi.

VRM Trade provided premium access to many cryptocurrency exchanges. Image: VRM Trade.

This level brought significant benefits. The highest levels at cryptocurrency exchanges offered the lowest trading fees. For example, the HFT firm's maker fee for placing orders on Binance was -0.002%, while the taker fee was 0.0157%. This made it much cheaper for the company and anyone using Digital Wave Finance's sub-accounts to run high-frequency and other trading strategies. In a later interview with WeBlock, Demin (Grachev's successor at Huobi Russia and co-founder of VRM Trade) stated that the company had collaborated with 30 such teams.

As an internal document obtained by The Block indicated, VRM Trade appeared ambitious. The company outlined the intentions of VRM Group to become the most influential unicorn crypto group by investing in the next crypto unicorn, forming a "decentralized Wall Street" within its core circle.

The plan was to raise its valuation to $100 million by 2021, with the core goal of becoming "the most influential company that attracts all talent and 'dominates' the crypto world."

2021: Pitching Black Ocean and Fly Tokens

VRM Trade's ambition began with the creation of a financial product ecosystem, with all products bundled around a single token.

"The main and unique idea of this project is to meet the growing market demand for rapid trading of large amounts of crypto assets," the project's pitch stated. It indicated that this would allow brokers and institutional participants to quickly sell cryptocurrencies worth over $100,000 without affecting prices in the open market.

The project was named "Black Ocean," consisting of an institutional dark pool with no market data and a broker liquidity pool. The pitch described the core of this plan------"an important component of VRM's business"------as the Fly token. If users of the exchange held 1-3 million Fly tokens and used more tokens to pay fees, they would receive discounts.

The total supply of the Fly token was set to reach 1.7 billion, with allocations distributed to investors, clients, teams, and advisors. Strategic partners would receive 5% of the token supply at an 80% discount.

The token was launched in January 2021, and Grachev was very optimistic about its prospects. A few months later, he told WeBlock, "It will be implemented across the entire ecosystem and listed on 10-15 exchanges worldwide." He added that he hoped it would rank among the top 20 cryptocurrencies by market capitalization on CoinMarketCap by the end of the year.

The connections Grachev established with exchanges while working at Huobi Russia were a key part of this plan. The financing platform listed team members of Huobi advisor Shawn Chong, Zou from OKEx, and Euguene Ng, the sales and business development director at Gemini, as advisors. However, a source familiar with the matter expressed doubt about whether Zou knew he would be listed. The pitch also listed Lucy Labs co-founder Rehor and George Chuang as advisors.

The financing pitch listed the advisors for Black Ocean and their affiliated companies. Image: VRM Trade.

The company also had its own exchange to support it. An internal document obtained by The Block indicated that it referred to CDAX (the exchange that emerged after the dissolution of Huobi Russia) as VRM Trade's own exchange, alongside Jiamix.

Another internal document explained how potential clients of Black Ocean would navigate the legal challenges of using cryptocurrency at the time. The company stated that clients would go through a "know-your-customer" process and sign agreements with one of VRM Trade's entities to engage in cryptocurrency trading as well as trades against USD and EUR.

"By the way, these clients might trade in other markets, such as crypto/RUB, but the RUB withdrawal and deposit functions will not be available until a special agreement is signed with a special legal entity (this is similar to Bithumb's scheme, where you can trade with KRW, but if you want to withdraw or deposit Korean won, you must go through additional requirements)," it added.

2021: Performance Issues

According to a press release, as of March 14, 2021, VRM Trade had raised $4.3 million for Black Ocean. Investors included venture capital firms NGC Ventures, FBG Capital, and LD Capital. The press release stated that Black Ocean would launch in the second quarter of that year.

But ultimately, nothing went live.

"It didn't produce anything real. The project lasted a year and then was terminated," said a person familiar with the company's operations, adding that "all investors were not compensated."

The individual stated that the company attempted to establish the exchange in a regulated manner, even hiring tactical personnel to obtain a license in Gibraltar, but this was never realized. They noted that while developers in Russia and Korea were indeed writing code, no trading ever took place.

According to a press release from Black Ocean in August, VRM Trade stated that it had created a launch platform for a "completely risk-free" initial decentralized exchange product. The idea was that if the token price did not perform well after launch, investors would get their money back. The press release provided an example where the token doubled in price after launch, but its performance was deemed unacceptable, and to "keep the community profitable," investors were refunded.

The project claimed that the token launch design was "risk-free." Image: Black Ocean.

Internal information obtained by The Block indicated that Grachev stated that new projects launching from January 2022 needed to agree on five conditions, including that the token price must triple after listing. If not, VRM Trade would not send the raised funds to the project. Another condition was that VRM Trade needed to clearly understand "how the project would manage liquidity and pumping," and he indicated he should be involved in those discussions.

The press release also noted that over the past weekend, the price of the Fly token had risen by 170%, with trading volume also increasing. The company stated at the time, "With new partnerships and services entering the market, Fly's sales are expected to continue to grow, and it is definitely one to watch for the future."

A company named VRM Korea later acquired the Fly token project, which is still under development. Since early 2022, the token's price has remained flat, down 99.5% from its all-time high.

2022: The Emergence of DWF Labs

According to an informed source, by June 2022, when the VRM Trade brand was abandoned, Demin and Chong had long left the project. Meanwhile, Grachev established a Singapore entity for DWF Labs, which would take on the public image responsibilities of Digital Wave Finance. Grachev, the Schweizers, and Rendchen were the initial shareholders.

According to an archived version of its website in Russian, Demin deleted references to being the chairman of the VRM board from his personal website at some point between July and October.

In September, DWF Labs officially launched. This marked the beginning of a more proactive stance in the cryptocurrency market, ultimately leading to a rapid increase in trading volume and public attention. A person familiar with its operations stated that DWF Labs had a large number of sales representatives aimed at bringing in business, while the two sister companies conducted substantial trading work behind the scenes.

"DWF represents Digital Wave Finance. We represent a new wave of Web3 venture capital. DWF Labs strives to align with our clients' business goals, helping their tokens achieve the best listing prices, raise funds, and create markets," Grachev stated at the time.

Andrei Grachev working in the early days at DWF Labs. Image source: Andrei Grachev, from X.

DWF Labs quickly expanded to Seoul, South Korea, with former FTX advisor Harvey Kim in charge of operations there. In documents prepared for potential clients, the trading firm subsequently listed Korean exchanges including Upbit, Bithumb, and Coinone as supported venues. Currently, foreign entities are prohibited from trading in Korea, and arbitrage is restricted, leading to significant volatility in the Korean market. According to a potential client, despite these challenges, DWF Labs continued to focus on collaborating with projects listed on Korean exchanges.

Grachev later claimed that this was compliant. "For example, we support our portfolio companies in the Korean market. This is very tricky for everyone, but we are able to do it correctly in a compliant manner. Creative, unbiased------that's our philosophy. High standards of service benefit the entire industry," he stated on X.

More broadly, Grachev seemed to develop an interest in Asian trading. While mocking the U.S. Securities and Exchange Commission on Twitter, he later posted that Asian exchanges had more users and higher trading volumes and that "it is much easier in terms of regulation."

A year later, Kim left the company.

2022: Florentin from Darley Takes Stake in DWF Labs

According to company records, Darley Technologies established a Swiss entity in 2021 with initial funding of 30 Bitcoin (then valued at around $60,000) and appointed Marco Schweizer and Rendchen as founding shareholders. An informed source revealed that Marco Schweizer intended to invest about $1 million in Darley Technologies to cover early salaries for the company.

In October 2022, Florentin became the chairman of the board of Darley Technologies, with the Schweizer brothers also on the board, while Rendchen's name was removed.

"Since leaving in 2022, I have never held any operational role in DWF Labs and have no interest in that entity. Since I left the boards of Digital Wave Finance AG or Darley Technologies in 2022, I no longer hold any operational roles in these entities," Rendchen told The Block.

According to company records, in December of last year, Florentin joined DWF Labs as a shareholder of its Singapore entity. According to screenshots seen by The Block, his LinkedIn profile previously stated that he had been an advisor to the company since DWF Labs launched, but this information was removed at some point in the past few months.

Until recently, Darley Technologies' website still regarded DWF Labs as a liquidity provider. Image: Darley Technologies.

Darley Technologies' website still listed DWF Labs as a liquidity provider, although the page mentioning this has recently been removed from its site.

Grachev later told Foresight News that around this time, DWF Labs was one of the creditors of FTX, holding its funds at the time of the exchange's collapse. Court records also indicated that Digital Wave Finance was a holder of FTX Series B shares, which were initially issued during two rounds of Series B financing for FTX in 2021.

2023: DWF Labs Attracts More Shareholders

In January 2023, Zou (a former OKEx member), Heng Yu Lee, and Ng (former Gemini members) also became shareholders of DWF Labs' Singapore entity. According to his LinkedIn profile, Lee has been a partner at DWF Labs since May 2022, while Ng has been a founding partner and advisor at DWF Labs since 2021, according to his profile. According to informed sources, both had previously served as advisors to VRM Trade, and Zou joined their team after leaving OKEx.

Ng is currently a co-founder of OpenEden, whose funds are managed by a registered fund management company regulated by the Monetary Authority of Singapore and collaborates with Standard Chartered Bank's cryptocurrency division, Zodia Custody. According to OpenEden's website, Darley Technologies' investment division, Darley Labs, is also an investor in OpenEden.

According to promotional materials, during this period, DWF Labs operated in Switzerland, Singapore, the British Virgin Islands, Hong Kong, Dubai (where it obtained a free trade zone license from the Dubai Multi Commodities Centre), and Korea. According to documents seen by The Block and a person directly familiar with the company's operations, trades were typically conducted through its British Virgin Islands or Singapore entities. The individual stated that the BVI was favored because DWF Labs had not obtained a license from Singapore's market regulator, the Monetary Authority of Singapore.

According to LinkedIn profiles, in February, Sylvain Barbezange, who was the head of over-the-counter trading at Darley Technologies, moved to Digital Wave Finance as the head of institutions.

2023: Stepping into the Spotlight

From this moment on, DWF Labs truly entered the public eye for the first time.

While the company conducted several trades at the end of 2022, the frequency of trading increased in March 2023. According to The Block's Deals Dashboard, DWF Labs made seven investments in Conflux, Orbs, Synthetix, Radix, and Fetch.AI.

In April of this year, it raised $10 million for a project named CryptoGPT, which was later renamed LayerAI, a decision that raised questions in the cryptocurrency community regarding the details of these investments. That month, reports from The Block and CoinDesk further revealed how these investments were typically conducted in the form of over-the-counter trades, executed in batches daily over a month or several months.

The Block subsequently provided more details on how these trades were conducted and offered insights into how the company communicated with clients, including a tendency to discuss price management with clients and potential clients. At one point, Grachev asked a client how high they wanted to raise their token price and discussed whether the company could achieve that goal.

DWF Labs was not intimidated by the spotlight throughout the year. It secured larger deals, finding $45 million to purchase EOS tokens from the EOS Network Foundation and $50 million to buy ALGO from the Algorand Foundation. The Algorand Foundation previously stated that in its transaction with DWF Labs, there was no discussion of manipulating the market or providing artificial trading volume. The Block has not reviewed documents or received information indicating that any cryptocurrency projects mentioned in this article have had discussions with DWF Labs regarding price management.

Andrei Grachev participating in a panel discussion at an event organized by OKX. Image: DWF Labs, from X.

After facing criticism, DWF Labs revised its strategy. According to DL News, it requested clients to start referring to such transactions as "strategic partnerships" rather than "investments." According to BlockBeats, transactions involving batch purchases would be announced after the trades were completed rather than at the outset.

Grachev posted on X that the company had applied for a virtual asset service provider license in the British Virgin Islands and was overall obtaining multiple licenses. He stated that the company was also undergoing an audit by a Big Four accounting firm.

Looking ahead, the company is launching its first incubation program for cryptocurrency companies and plans to create what Grachev referred to as a compliant over-the-counter trading market for cryptocurrencies, echoing the earlier plans of Black Ocean.

With the financial backing of Digital Wave Finance and the extensive network built along the way, DWF Labs has the potential to become a significant force in the cryptocurrency space in the near future.

If so, DWF Labs could shed the shadows of its past and reconstruct a new blueprint.

This article is the second in a two-part series on DWF Labs. The first article, which discusses the operational secrets behind DWF's investment in 470 projects, can be found at this link:

https://www.chaincatcher.com/article/2108465