WSJ exclusive reveals DWF suspected of market manipulation, Binance involved

Author: BlockBeats

On May 9, The Wall Street Journal published another in-depth report targeting the crypto giant Binance. The article pointed out that in response to the SEC's investigation in 2022, Binance expanded its market surveillance team and hired more than a dozen investigators from Bank of America and hedge fund Citadel, but chose to ignore evidence of significant VIP clients suspected of market manipulation.

According to reports, the Binance surveillance team submitted a recommendation to ban DWF Labs in late September last year, but the team leader was dismissed by the company. A new executive at Binance stated that the new investigation found insufficient evidence to indicate that DWF Labs was engaged in market manipulation. The self-trading identified by the surveillance team might be unintentional so-called self-trades, which alone may not constitute manipulative behavior.

The Binance surveillance team found that DWF Labs manipulated the prices of YGG and at least six other tokens, conducting over $300 million in wash trades in 2023. According to some former company insiders, the investigation concluded that these actions violated the terms of use.

The team developed new software tools to track market manipulation and identify "wash trading"—where traders act as both buyers and sellers in the same transaction to create a false impression of market activity. The new technology made investigators aware of the potential scale of the problem, especially among VIP clients who relied on their business. Data showed that last year, top traders on the Binance platform with monthly trading volumes exceeding $100 million accounted for two-thirds of the total trading volume.

Subsequently, DWF Labs responded on social media: "We want to clarify that many of the allegations reported by the media recently are unfounded and distort the facts. DWF Labs adheres to the highest standards of integrity, transparency, and ethics, and we are always committed to supporting you and the over 700 partners in the entire crypto ecosystem."

Binance responded to the WSJ report, stating: "Binance strongly denies any claims that our market surveillance program allows for market manipulation on our platform. We have a robust market oversight framework that can identify market abuse and take action. Any user who violates our terms of use will be removed; we will not tolerate market abuse."

Competitors Have Long Resented DWF

The WSJ report mentioned that after Binance launched high-leverage derivatives linked to the YGG token in August last year, its value skyrocketed fivefold. Grachev had previously boasted about YGG on X, claiming that its listing would bring "sustainability and strength" to the token, but its price soon plummeted thereafter.

The price fluctuations attracted the attention of two other market makers regarding DWF, who lodged complaints with Binance. One of the market-making firms complained to the department handling VIP clients at Binance about DWF's trading, leading the Binance team to begin an investigation into DWF in September last year. Binance investigators found that DWF manipulated the price of the YGG token and at least six other tokens, conducting over $300 million in wash trading in 2023.

Investigators discovered that after Grachev's promotional tweet for YGG was published, DWF sold nearly five million tokens in two batches around the peak, leading to a price crash. YGG co-founder Gabby Dizon stated that he was unaware of the investigation's results.

Since its market debut, DWF has been under the media spotlight, with several reports revealing various details of DWF's operations to different extents.

Previously, the three tokens YGG, DODO, and C98 experienced volatile price movements after news of DWF Labs' related funding actions hit the market. This further confirmed some institutions and investors' suspicions regarding DWF Labs' repeated market-making activities, leading to projects related to DWF Labs being made into investment reference charts to increase the chances of hitting the next rising token.

To attract more commercial clients, DWF Labs mentioned in its "Market Making" business that it "will provide efficient and sustainable liquidity for our partners." Therefore, the price trends of YGG, DODO, C98, and other previously market-made tokens coincidentally validated DWF Labs' business level and service quality.

Related Reading: "DWF Faces Industry-wide Exclusion, GSR Claims 'Unworthy to Share Stage with Other Market Makers'" "An Analysis of DWF's Business Logic: How to Use Relevant Information to Guide Secondary Trading?"

DWF Labs has long been criticized as a "VC + market maker" business model, and DWF Labs does not shy away from this, directly displaying a sign offering such services on its official website.

In a previous report by The Block, an employee of DWF Labs showcased a chart of token price increases after prior collaborations to demonstrate effectiveness while vying for business. A source familiar with the matter stated that during a conference call with potential clients, if the other party showed hesitation, a DWF Labs executive would start mentioning the price increases of tokens from previous collaborative projects. It is reported that DWF Labs' managing partner Andrei Grachev would ask clients how high they wanted to raise the token price and discuss whether the company could achieve that goal.

Related Reading: "The Block: Uncovering How Crypto Market Maker DWF Labs Rose to Prominence" "Interview with DWF Labs: We Do Not Manipulate Anything"

Despite the ongoing controversies surrounding DWF Labs, the company and its core personnel have shown no signs of slowing down. In September last year, HTX (formerly Huobi) awarded DWF Labs the Best Partner Award. Recently, Grachev announced on social media that the company is undergoing an audit by an unspecified Big Four accounting firm and is obtaining multiple licenses. According to BlockBeats' interview, the company has applied for a virtual asset service provider license in the British Virgin Islands.

Grachev himself is not shy about flaunting his wealth or celebrating the company's success. He previously posted a photo of a Lamborghini with the DWF Labs logo on social media, while other posts show that the company has been enhancing its image by hosting events in Istanbul and Hong Kong.

The sentiments of "competitors" towards DWF are also quite evident. Last year, a forum at Token 2049 unexpectedly sparked a feud among cryptocurrency market makers. DWF Labs co-founder Andrei Grachev tweeted his thanks for the invitation after the "Web3 Connect" forum, only to be met with a furious response from market maker GSR on Twitter, stating that DWF Labs was unworthy to sit alongside GSR, Wintermute, and OKX at the forum, calling it an insult to them.

GSR stated, "It is very sad that by the end of 2023, bad actors like DWF Labs can still receive so much attention." Another market maker, Wintermute CEO Evgeny Gaevoy, also liked this tweet. Interestingly, in the event photos shared by market maker GSR, Andrei Grachev was deliberately cropped out.