Decoding the Rise of DWF Labs Helping Clients Hit the Jackpot with 470 Projects in 16 Months

Unpacking the Success of DWF Labs Enabling Clients to Achieve 470 Projects in just 16 Months

Author: Tim Copeland, The Block; Translation: Song Xue, LianGuai

• Earlier this year, DWF Labs became the center of attention due to its controversial relationship with cryptocurrency projects.

• This article explores how DWF Labs builds its over-the-counter trading, venture capital transactions, and market-making services.

• According to multiple sources, executives at DWF Labs tend to discuss price management for clients.

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Earlier this year, a newcomer emerged in the cryptocurrency space. Suddenly, the name DWF Labs could be seen everywhere, injecting funds into projects that were struggling for financing after the collapse of FTX and a broader market drought.

The company seemed to be splurging cash everywhere. Last year, it secured a $20 million investment agreement for the Synthetix protocol, a $28 million investment agreement for the blockchain platform Conflux, a $40 million investment agreement for the artificial intelligence platform Fetch.AI, a $45 million investment agreement for the EOS Network Foundation, and a $50 million investment agreement for Algorand. Reportedly, the company claims to have invested in a total of 470 projects and collaborated with about 35% of the top 1,000 tokens by market cap in its short 16-month history.

But for a young company, such a massive cash injection raised questions: how are these transactions pieced together, and is everything as it seems?

In April, some of these questions were answered. Reports from The Block and CoinDesk revealed the structure of these transactions, indicating that they were largely private transactions rather than traditional investment rounds. However, questions remained about how DWF Labs conducts its business and how these transactions, along with others, are constructed.

To gather more information, The Block interviewed 16 clients, potential clients, and individuals familiar with the company’s operations. The Block analyzed 10 proposals and contracts between DWF Labs and its clients and potential clients, as well as their communications. The key finding of the investigation was that DWF Labs frequently discusses potential price changes when trying to attract potential clients and even when working with clients.

Collaborating with Clients, Responding to Token Price Events

Shortly after its launch in September 2022, DWF Labs created a pitch deck for potential clients, which heavily emphasized price actions.

Under a section called “Price Management,” the pitch deck stated that the trading firm could coordinate efforts with the potential client’s marketing team to help the token price respond to relevant events.

Explanation on how this is achieved was provided at the end of the deck. It stated, “In anticipation of and during important scheduled news events, the algorithm can be biased towards one side of the order book to push prices up.”

“Since this is done on the passive order book level rather than actively creating artificial trading volume, the token price growth appears to be genuine,” it added. “Please note that, although DWF can provide artificial trading volume, this is almost unnecessary due to competitive pricing.”

This wording has been ongoing for some time. For a while, DWF Labs explained in proposals to clients that the company would use its market-making services and proprietary funds to trade clients’ tokens, improving the token market. The text stated that this would result in “bullish sentiment, organic trading activity, and price improvement.” The Block saw such language in a proposal sent to potential clients, and a source familiar with the matter confirmed that it had been used in multiple proposals.

This statement has also been conveyed in verbal conversations. A potential client told The Block that a DWF Labs employee had shown them charts indicating token price increases following previous partnerships while attempting to win their business over the past few months. A source directly familiar with the matter said that during phone conversations with potential clients, if they hesitated, a DWF Labs executive would begin citing instances of token price increases after the company’s previous collaborations.

This was also the case in written conversations. Earlier this year, another potential client provided messages from a DWF Labs executive confirming that they had offered services to boost token prices at the time. Additionally, a client of the company provided messages from earlier this year showing DWF Labs Managing Partner Andrei Grachev asking about the client’s desired price increase for tokens and discussing whether the company could achieve that goal. The authenticity of these two executives’ Telegram accounts was verified by the company’s own validator.

Recently, the company seems to have gradually downplayed this language related to price management in written communication, at least in proposals. This conclusion was drawn from two different documents provided to two potential clients in the past few months.

How DWF Labs Conducts Liquidity Investment

DWF Labs focuses on three types of transactions: liquidity token investments, locked token investments, and market-making agreements, often bundling them together.

According to the terms of the three transactions seen by The Block, for liquidity token investments, DWF Labs typically attempts to purchase a certain quantity of stablecoin tokens at a discount of 5-15% from the current market price. Over the course of a month or several months, the daily purchase amount is around $100,000-$150,000, with the purchase price being the token price at the start of each day minus the discount.

This means that project founders can effectively cash out through DWF Labs at slightly above market prices, while claiming that the project has received a large investment.

“For many smaller projects, over-the-counter trading has become a lifeline as they can offload their tokens, associate themselves with a bigger name, claiming they’ve received an investment, and extend the lifespan of their funding,” said someone with direct knowledge of DWF Labs’ operations.

A customer of DWF Labs has expressed that this is exactly why they chose to work with the company. They state that this relationship is a good way to sell tokens without directly selling them on the market.

In a previous interview with The Block, Glačev questioned this viewpoint, stating that transferring funds to a crypto exchange does not necessarily mean that the company is immediately selling tokens.

He stated in an interview in April: “We transfer tokens to the exchange, but we never sell them on a large scale. I can say that most of the transactions we have done last month, and even before that, we have not sold them yet – maybe only a small portion.” Glačev declined an interview for this article.

One controversial issue is that DWF Labs’ token purchases are often announced in advance, although they may not be completed later on. In response to this negative reaction, the company reportedly changed its strategy.

“Since the first half of this year, we have learned a lot,” Glačev said during an interview. “We will not announce anything that is not yet completed. If we announce something, it has already been completed.”

How are market-making and venture capital trades structured?

For market-making services, based on two proposals seen by The Block provided to potential clients and a contract signed with a client, DWF Labs typically provides its services within a year. This may involve lending project tokens, as shown in these two proposals.

According to these two proposals, when lending is done, the company has call options that allow it to purchase project tokens at an agreed price upon signing the agreement, which is a common feature of market-making contracts. If the token price reaches a certain level (referred to as the exercise price), these options can be exercised. This is intended to protect market makers in case token prices rise while providing services, resulting in losses when repaying the loan.

Jordi Alexander, Chief Investment Officer of Selini Capital, said, “Market makers must show both buy and sell orders. To protect against downside, they must pick projects they are comfortable holding exposure to. To protect against upside, they need exercise prices.” He added that exercise prices are often set close to the token price but may be slightly higher.

According to two people familiar with other market-making firms in the crypto space, these exercise prices are typically set at 100% above the token’s initial price.

However, according to the terms of the two proposals, for DWF Labs, the exercise prices could be set at multiples of the token price. This means that if the token price significantly rises, DWF Labs has the potential to obtain a higher percentage of return.

A person familiar with the company’s operations said: “If you’re a market maker, you want the token price to rise. You make money through the pricing of options after one year. You want to be able to exercise the options at a price lower than what you priced. That’s where the profit comes from.”

In a market-making proposal, DWF Labs specifically outlined how it will help promote the project’s announcements and increase interaction with its community. Internally, this is a significant focus. The company informs employees of announcements to be made and encourages them to post, to maintain motivation and “strike while the iron is hot,” the insider said.

However, its external communication is not always so clear. A customer of DWF Labs said that the company provided limited information about the market-making services offered, unlike other cryptocurrency market-making companies. “Usually, you get detailed reports. But with them, it’s not that detailed. To be honest, we’re not sure what they’re doing,” they said. Another contract seen by The Block and signed by another client indicated that DWF Labs has the right to decide what information to provide in such reports.

Another client stated that they did not receive reports from DWF Labs regarding the market-making services they were involved in. The client had to reach out to the relevant cryptocurrency exchanges to confirm that these services were indeed provided, and they did receive that confirmation.

Regarding token investments in venture capital, according to a client and two proposals provided to different potential clients, the trading company typically seeks larger discounts, up to 50%, and locks them up for one to two years, with stablecoin payments being made here as well.

Positive responses from partners

While conducting all these transactions, DWF Labs continues to strengthen its business and expand its influence throughout the industry. The company has also strengthened some partnerships, such as running validation nodes on the TON blockchain. In comments sent to The Block, some industry partners expressed satisfaction with the results.

The Algorand Foundation stated that its $50 million transaction was an over-the-counter trade involving DWF Labs purchasing segments of ALGO tokens over time, to be completed by July 2023. “At no time during our negotiations with DWF was there any mention of market manipulation or suggestions of providing artificial trading volume,” said Eric Wragge, Global Head of Business Development and Capital Markets at the Algorand Foundation.

The transaction with the EOS Network Foundation involved the purchase of $45 million worth of EOS tokens and a $15 million commitment to invest in enterprises within the EOS ecosystem. Yves La Rose, CEO of the EOS Network Foundation, stated, “Our strategic partnership with DWF has yielded exceptionally positive results, expanding our ecosystem significantly through cross-border collaboration and financial investment. We look forward to continued success and growth in 2024.”

“Our collaboration with them has been extremely pleasant,” said a core team member of the memecoin project Floki, who sold $5 million worth of tokens to DWF Labs. “On an institutional level, they have been very helpful: opening access to their network, helping facilitate listings on exchanges, and connecting us with partners in their investment portfolio, overall boosting our brand and providing support. They also have a highly talented and professional team. They typically respond to our requests within minutes, often in almost 24/7 fashion, and we often see Andrei himself responding and driving the transactions forward.”

Synthetix refuses to comment on this article. Conflux and Fetch.ai did not respond when asked for comment. There is no evidence of price manipulation discussed with DWF Labs among the mentioned crypto projects.

A Bold Showcase

Despite the controversies surrounding DWF Labs, there seems to be no slowing down the connections between the company and its closely related personnel. In September, HTX (formerly known as Huobi) awarded Digital Wave Finance with the Best Partner Award. On X, Grachev recently announced that the company is undergoing an audit by an undisclosed Big Four accounting firm and is applying for multiple licenses. According to his interview, the company has already applied for a Virtual Asset Service Provider license in the British Virgin Islands.

In the future, the company plans to launch a genesis program that incubates crypto companies and intends to create a compliant market for Grachev’s described over-the-counter crypto trading – potentially placing it in a critical position within the crypto traders.

Grachev posted a picture of a Lamborghini with the DWF Labs logo. Image: Grachev, via X.

Grachev himself does not hide his wealth and celebrates the success of his company. Last month, he sent $22,000 to a pseudonymous crypto trader on X to complete a car purchase within three hours upon the trader’s request. Some observers noted that this is reminiscent of the sporadic Tesla giveaway events previously done by former FTX CEO Sam Bankman-Fried. Grachev also posted a picture of a Lamborghini with the DWF Labs emblem, while his other posts show the company raising its profile by hosting events in Istanbul and Hong Kong.

Looking back at DWF Labs’ progress in the past year and four months, Grachev admits to making mistakes and that the company is “not perfect.” However, he claims that by taking risks and taking different actions, the company is raising the standards for market-making firms, and that the company is “controversial and proud of it.”

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