Introduction to LD Capital | The truth behind the chaotic surge of altcoins, how to see through and leverage the business logic of market maker DWF

You may have wondered about the inexplicable surge in the prices of some cryptocurrencies. Start-up companies have not made significant product breakthroughs, and tokens have not shown a reasonable demand, yet prices have skyrocketed in a short period, defying the odds. Venture capital firm LD Capital recently published a report "DWF's Business Logic and How to Use Relevant Information to Guide Secondary Trading?", explaining the momentum and reasons behind this phenomenon from the "market maker DWF".

LD Capital explains: "DWF is a product of the bear market under weak regulation, taking advantage of the predicament of project teams and the psychology of retail investors to achieve dual benefits. Project parties in the bear market generally face difficulties in cashing out and financing, and directly selling tokens would undermine fragile market confidence, severely bearish token prices, and affect the project ecosystem."

The "Magic Drug" for Startups to Continue Financing: DWF

LD Capital believes that startups face challenges in liquidity and financing during bear markets, and direct token sales can harm market confidence. DWF assists startups in shipping through various means such as OTC and marketing, but rarely provides real help for the long-term development of projects. Secondary market investors need to clearly understand DWF's specific business and adopt corresponding strategies when they see projects collaborating with DWF. DWF's market behavior has a clear pattern, from investing in the secondary market, OTC coin purchases to market making and marketing. Investors need to pay attention to signals such as its interaction with exchanges, changes in holdings, and funding rates to judge market trends.

DWF Business: Market Making as Investment

DWF is often criticized for blurring the concepts of investment and market making in the crypto market. In traditional crypto markets, investment refers to injecting funds into project teams to support their development, while market making provides liquidity for tokens. DWF refers to itself as a Web3 venture capital and market maker on its official website, with its business including investment, OTC, and market making. However, based on historical records, DWF often chooses to invest in troubled projects and then profit by selling coins on the secondary market, often aggressively boosting the projects they invest in. This behavior aims to establish a profitable image to attract more startup teams to collaborate.

Manipulation Examples: YGG, CYBER, Coin98

DWF Labs' operating model in the secondary market mainly involves injecting funds into "troubled" projects, buying tokens at a discount through OTC, and then selling them on the secondary market for profit. Additionally, DWF boosts its brand image through aggressive trading and then sells it as a product to new startup projects.

LD Capital provides specific examples:

1. For YGG Yield Guild Games, shortly after YGG issued tokens, DWF purchased a large amount of YGG tokens through OTC and sold them at the right time on the secondary market to profit.

2. DWF's operating mode for CYBER is similar, first withdrawing coins from the Binance exchange, observing price changes, and then operating when the price rises to profit.

3. DWF received a large amount of C98 tokens transferred from the official Coin98 address and quickly sold them on the secondary market for profit when the C98 price rose.

This model has also been seen in other projects such as LEVER, WAVES, CFX, MASK, ARPA, and others.

Overall, DWF typically operates in both the futures and spot markets. In the early stages of the market, a large amount of capital flows into the futures market, causing prices to rise. In the middle to later stages, profits are mainly obtained through spot trading. The key is to determine if the profit exceeds the cost at each stage and whether there is a large selling pressure on the market.

Market Making Alongside Creating Deities

LD Capital states that as a new entrant investment institution, DWF frequently operates in bear markets and has collaborated with over 260 projects. Although the company claims to have no external investors, its large and high-frequency investment methods have raised questions about the source of funds. Many of the projects it invests in are not industry hotspots but rather some older projects with average fundamentals, such as EOS and ALGO. After DWF's announcement of investment, there seems to be no improvement in the product development, marketing, and community collaboration of these projects.

Furthermore, there are allegations that DWF engages in "marketing-style" investments, creating good news to attract retail investors, and then operating token prices in the secondary market for the convenience of its team to sell tokens. Two events in September and October have further deepened doubts about DWF's operations. Market participants need to carefully assess news related to DWF. Several projects related to DWF have seen continuous declines in token prices.

Specializing in Tokens in Trouble

LD Capital further mentions Abracadabra as an example. It is a stablecoin project affected by UST collapse, experiencing a bear market with low market value, token price, and protocol TVL. As a result, on September 14, it passed Proposal AIP#28 and signed market-making terms with DWF, where Abracadabra provided a large amount of SPELL loans to DWF, while DWF purchased SPELL tokens at a 15% discount market price and locked them for 24 months. LD Capital believes that the cost paid by Abracadabra is significantly higher compared to other market-making projects in the industry, including discounted token purchases and European options. Since the market-making terms include buying tokens at market price discounts, from DWF's perspective, short-term lowering of token prices benefits its profit maximization. After the proposal was approved, the SPELL price briefly rose by 72%, but quickly dropped by 31% after DWF entered. SPELL's capital consistency is poor, and there is high uncertainty in market performance.

Recommendations for Investors

LD Capital suggests that for investors, projects collaborating with DWF need to be evaluated based on their specific business and strategies formulated based on historical market performance. DWF's various behaviors and signals can help investors predict market trends. Here are some specific recommendations:

1. Targets directly involved in secondary market investments by DWF need to be closely monitored, as these targets are usually newly listed coins with good chip structures or Meme tokens.

2. Targets that DWF OTC buys coins from startups and packages them as strategic investments often first show months of price declines in the secondary market, followed by rapid price boosts. The price-boosting trend usually lasts no more than a week after DWF deposits coins into the exchange.

3. Genuine market-making projects by DWF do not have doubling price trends but often attract speculative capital, with a brief window of accumulation. Seizing opportunities can give you an edge.

4. News related to DWF often leads to poor win-loss ratios in market trends. The logic behind this is that stakeholders use DWF's current market influence to attract liquidity and dump coins. After judging DWF's intention to boost prices, a surge in contract holdings and spot trading volume is a signal of market initiation; DWF's on-chain address interacting with exchange addresses, high prices, declining holdings, and extreme negative funding rates often indicate the end of a trend.

Full article: "DWF's Business Logic and How to Use Relevant Information to Guide Secondary Trading?"