Kain Warwick, founder of decentralized finance (DeFi) platform Synthetix, recently shared a deep dive into the world of crypto market makers (MMs), offering a critical look at how they have evolved and, at times, exploited projects and traders in the cryptocurrency space.
In a thread on X, Warwick recounted his personal encounters with various market makers and revealed troubling practices that have come to light since the ICO boom.
Market Makers and the ICO Era: High Costs, High Risk
Warwick reflected on the early days of cryptocurrency projects, particularly during the 2017 ICO craze, where many startups found it nearly impossible to raise funds without securing deals with market makers. The hefty cost for these services, sometimes as high as $300,000 a month, made it a necessary evil for many projects, despite the financial strain. According to Warwick, these deals were seen as a ticket to attracting big investors and securing listings on top exchanges. However, the situation quickly became complicated as some market makers began resorting to dishonest tactics to maintain their influence in the market.
Market Manipulation and the Fall of Trust
As Warwick recalls, some market makers manipulated volumes and prices on lesser-known exchanges, employing strategies like “crossing orders” with themselves to artificially inflate trade volume. While these tactics could not be carried out on more reputable platforms such as Binance and Kraken, they remained prevalent on so-called “tier 3” exchanges. The consequences were swift; exchanges like Binance started blacklisting these market makers in late 2017 due to their questionable practices.
The Rise of Call Options and “Yolo Pumps”
One of the more concerning trends Warwick identified was the rise of call option strategies, where market makers would “pump” tokens, exercise call options, and then dump them for profit. He drew a sharp distinction between these “bad” market makers, who prioritized manipulation for quick gains, and “good” ones, who aimed for market stability by maintaining tight spreads and neutral positions. Warwick explained that American-style calls were often used for these manipulative tactics, contrasting them with European-style options that offered less potential for abuse due to their exercise restrictions.
“Low Float Meta” and Token Manipulation
Warwick also discussed the concept of “low float meta,” a strategy popularized by Sam Bankman-Fried and others. In this strategy, market makers and large funds exploit discounted tokens to control the market and extract exit liquidity. Warwick explained that with fewer tokens in circulation, it becomes easier to engineer price movements, especially for those with large token holdings. This practice allows players to profit by “shorting the top” during Token Generation Events (TGEs) and buying back in at a lower price when liquidity is low, creating a vicious cycle of manipulation.
DWF Labs and Synthetix: A Cautionary Tale
Warwick shared his own experience with DWF Labs, revealing that Synthetix was among the first projects to be “grifted” by the firm. While these deals might seem beneficial for a project’s treasury in the short term, Warwick warned that such arrangements often harm the token and its community in the long run. He cautioned that while many of these practices might appear standard in the world of crypto market-making, they ultimately damage the ecosystem and diminish the value of the token.
The Importance of Transparency in the Crypto Market
In his concluding remarks, Warwick stressed the importance of transparency within the cryptocurrency space. He warned traders and projects to be wary when seeing large amounts of tokens transferred to market makers, as it may be a sign that they are being set up for “exit liquidity.” For Warwick, the growing manipulation in crypto markets calls for greater scrutiny and calls for a more transparent approach to market-making that benefits both projects and the broader crypto community.
Editorial Team
Reporter at Coindoo
Source: https://coindoo.com/synthetix-founder-exposes-crypto-market-makers-manipulative-practices/