Kain Warwick, founder of Synthetix, recently spilled the tea on crypto market makers (MMs), revealing some seriously shady practices. His insights, shared on X, paint a picture of how things have evolved, from the early days of ICOs to the present.
The Expensive Early Days & The Rise of Shenanigans
Back in the 2017 ICO craze, it was almost impossible to launch a successful project without making deals with MMs. Warwick says these deals cost a hefty $50,000 to $300,000+ per month! While expensive, they were seen as crucial for attracting investors and getting listed on major exchanges.
However, many MMs quickly turned to underhanded tactics. By late 2017, even Binance was booting them off for their shenanigans. These bad actors manipulated trading volume on smaller exchanges by essentially trading with themselves. This trick was harder to pull off on bigger exchanges like Binance or Kraken.
Evolution of Market Making: From YOLO Pumps to Low Float Meta
One major shift was the use of call options. Warwick describes how some MMs would artificially inflate token prices (“yolo pump”), exercise their options, and then dump everything. He contrasts this with “good” MMs who maintain tight spreads and stay “delta neutral.” He points out that European-style call options are less susceptible to manipulation than American-style options. American calls, he says, were mostly used for “extraction.”
Another issue is the “low float meta,” popularized by Sam Bankman-Fried (SBF). This involves exploiting discounted tokens to create easy exit liquidity. With fewer tokens in circulation, price manipulation becomes easier, allowing those with large holdings to profit.
DWF Labs and the Grift
Warwick even called out DWF Labs, claiming Synthetix was one of their early victims. He argues that while these deals might temporarily boost a project’s treasury, they ultimately harm the token and its community in the long run.
A Warning to Investors and Projects
Warwick’s key takeaway? Be wary of massive token transfers to MMs. It’s often a sign they’re setting you up for an exit scam. He stresses the need for transparency and healthy skepticism, especially when you see sudden price spikes or secretive deals.
While the crypto landscape has changed since the ICO boom, Warwick’s story serves as a reminder that shady market maker practices are still a concern. Both projects and investors need to stay vigilant.
