Movement What happened? Dragonfly learned a lesson from this, and Wintermute called on the industry to establish a market maker disclosure mechanism

The Unchained show is hosted by Dragonfly partner Haseeb Qureshi, Tom Schmidt, Robot Ventures founder Tarun Chitra and Compound founder Robert Leshner. This episode invites Evgeny, CEO of well-known market maker Wintermute, to talk about the influence of market makers in the market and the recent Movement incident. Movement co-founder Rushi resigned after being accused of signing strange contracts with external market makers. Currently, team members have formed Move Industries to take over Movement.

( Movement Labs quickly cuts co-founders, insider trading of MOVE tokens triggers major shake-up )

Movement core team founded Move Industries

Movement Labs has signed an agreement with external market makers that if Movement's FDV exceeds $5 billion, they can liquidate these tokens and split the sales profits with the Movement Foundation 50-50. This means that market makers, who are supposed to provide liquidity neutrally, are actually incentivized to drive up the price of tokens and then sell them.

This arrangement not only allows market makers to make money, but the Movement Foundation also shares in the profits. They give 5% of the total token supply to a single market maker, which is a huge amount compared to the circulating supply (less than 10%). The day after the listing, they sold $38 million worth of Move tokens, and Binance banned the relevant accounts. Rushi stepped down after being accused of collusion with the market maker. Movement is currently managed by Move Industries, with former BD head Torab serving as CEO and marketing chief Will serving as president.

Market makers’ profit model mostly comes from coin issuers, exchanges and options

If you want to be listed on an exchange like Coinbase or Binance, the token issuer needs to reach an agreement with a large market maker like Wintermute. Standard market making agreements usually include some KPIs, such as market making operation time, spread widths, and the number of pending orders on the order book.

In return, market makers are paid, and one of the common ways is for issuers to lend tokens to market makers so that they have inventory to make markets. Additionally, market makers may be compensated in cash or in an options structure. If the token is successful, the market maker can reserve some of the tokens at a predetermined price, which is higher than the initial listing price.

Regarding the market maker issue, Wintermute CEO Evgeny said that market makers usually receive compensation from the project party in a structure similar to a call option. At the end of the agreement, market makers can choose not to return the borrowed tokens, but to return stablecoins or US dollars at a certain strike price. This price is usually 25%, 50% higher than the time-weighted average price (TWAP) after listing, and sometimes higher. This is typically how it works. But Movement’s contracts do not have call options or similar structures.

Market Maker Leader: Web3Port Contract is unprecedented

Given the option structure and strike price, why wouldn’t market makers manipulate the price of each token? The question is how big the incentive is, market makers might get 0.5% of the token supply, but often less, depending on the market cap of the protocol. But even if you are a market manipulator, with this option structure, after you push up the price, you still need to keep the price stable before expiration.

Generally speaking, if the market maker does not provide buy and sell quotes in a programmed manner, the token issuer can cancel the entire contract, thereby losing the option. Trying to sell coins after pushing the price up could cause the price to fall. Therefore, the incentive must be large enough to both push up the price and allow for cashing out later. In the case of Web3Port, what is particularly interesting is that there is a clear incentive to sell after exceeding the $5 billion valuation.

What’s even more interesting is that Web3Port gave the Movement Foundation a huge sum of 60 million in the transaction as a guarantee for completing the contract. To Wintermute, this was unthinkable. The money is so huge that even if the protocol gives you 5% of the token supply, market makers’ income mainly comes from trading. This is a question of opportunity cost. Using $60 million in perpetual contract strategies, market making strategies, or DeFi will generate returns.

Receiving protocol tokens but paying $60 million as collateral is equivalent to encouraging market makers to push up prices and sell $MOVE tokens as much as possible to get their funds back, otherwise they will lose the income of idle funds every day. Evgeny pointed out that this is an unethical and uncommon protocol. As a leader among market makers, he did not know about its existence until Binance kicked Web3Port out a few months ago.

Evgeny said that there are also "serial entrepreneurs" among market makers. Many market makers from Asia will not promote themselves and start a new business after the scandal breaks out. But this is not uncommon for tokens that are only listed on second- and third-tier exchanges and never on Binance or Coinbase. Many so-called market makers are actually ways for founders to cash out illegally. They say they are creating liquidity, but in reality they are taking tokens, selling them, and then sharing the profits with the founders, which is exactly the structure of the Web3Port protocol.

Robert Leshner said that such scandals actually happen frequently, but the public does not know the details behind them. There may be more unreported dramatic events every day because they fail to attract the level of attention of CoinDesk. After watching this, he thought it was just a farce.

He analyzed that this incident was caused by the market maker messing around and the team did not know how to negotiate properly. These poor terms and incentives are a disaster. Now that everyone has a better understanding of how market makers operate, I hope there will be more stories revealing the truth behind them, because transparency is too low right now. He also added that he believes it would be difficult for market makers to do these things without the knowledge of the protocol. Those who claim they don't know what's going on with the agreement, most of the time they do know.

In the case of Movement, they obviously knew. You can see in the emails that the foundation’s reaction was, “What the hell, this is the most ridiculous agreement I’ve ever seen.” But a few days later they signed it.

Interestingly, Kaito recently published a statement stating that Web3Port was once a cooperative market maker, but felt that Web3Port’s execution deviated from the original intention and quickly decided to terminate the cooperation.

Movement Practical ability is a major hidden danger

Tom Schmidt said: "Movement is very strange. It is not a top project, but it is not unknown. It has investors like Robot Ventures and its products are also worth seeing. Someone should stand up and stop it. The Movement team is praised as a young, energetic and ambitious founder. Naturally, some people will ask why they do this? Why do the founders choose not to take the right path? They have successful projects and so many supporters. Why do they sell tokens and cash out early instead of focusing on products?"

They have long been criticized for launching a token before mainnet, and are rumored to rely heavily on contractors, have a weak technical team, and focus too much on marketing rather than substance. This has caused many people to worry, most of which are rumors and no one has any definite evidence. But some people say they are manipulating circulation, not doing airdrops, and launching tokens before having a real product. All of this points to problems with the project.

Movement It is surprising that a scandal broke out in a project of this magnitude

After the Movement incident, Haseeb spoke to some people and several questions arose. First, how does this change your view of startups or founders? Second, what does this reveal about the incentives of founders in the industry? Are there countless founders like Rushi? I personally don't think so. This is why there is so much attention and FUD about Movement. I've seen a lot of unconfirmed claims on Twitter, but that's rarely the case with other projects.

As for Movement, after seeing these statements, everyone felt that it was only a matter of time before there would be evidence that they were doing something immoral. But I think there are not many such projects. There may be some on the fake exchanges, but they probably are not among the top 100. In terms of market capitalization, it is rare for something like this to happen at Movement's level, which is why it has attracted so much attention.

Hasseb read a Cointelegraph article that mentioned market maker protocols and quoted a Web3 consulting firm. I did some searching before the show and think people may be underestimating the number of long-tail junk projects. These projects are not valuable, but there are many of them. These projects will go to second- and third-tier exchanges to find such market makers. But it is crazy that this happened to a high-profile project like Movement, valued at $3-4 billion. It is now down over 80%, with prices practically falling in a straight line.

As for what you’ll pay attention to next time you look at a new token after this incident? Evgeny said he is sensitive to such high-profile, marketing-driven founders. But in Silicon Valley, traditional venture capitalists often favor such energetic, aggressive founders, which sometimes coincides with fraudulent behavior.

Young, ambitious founders are a warning sign

Haseeb said Dragonfly did not invest in Movement, but not because it questioned their ethics and believed they would sell tokens or violate the lock-up period. They just thought the technology wasn't interesting enough and was a spin-off project. Having only met Rushi once or twice, the impression is that most investors find him dynamic, charismatic and ambitious. Blockworks once had an article praising Movement, repeatedly saying: "They are young and raised a lot of money." This has become a meme. Forbes 30 under 30 is usually a warning sign.

Robert Leshner said that he was a small investor, did not participate in the early stage, and did not know the team well. He believes that all parties involved should learn lessons from this to improve business transactions and transparency and be fair to the entire ecosystem.

As for your opinion of Rushi? He said that in the Series A round, it was not entirely a founder-driven investment. Early stage investment is about betting on the founder, but later stage investment focuses more on traction (technology, financing, etc.). He invests in the A round, and if it is in the early stage, he will have a deeper understanding of the team.

Wintermute CEO takes the lead: Industry should establish market maker disclosure guidelines

As for what the industry should learn from this? Haseeb suggested that just as market makers in traditional markets need to disclose, the same should be true for cryptocurrencies. The exchange knows your market maker, but retail investors don’t. My ideal disclosure system is one in which the information gap between exchanges and retail investors is zero. The public should know everything that the exchange knows when applying for listing. Even the terms of market maker agreements should be made public.

As a leading market maker in the industry, Evgeny fully supports this system. To put it bluntly, cryptocurrencies really do look like securities. IPO must disclose information such as market makers, investors, and risks. Disclosure provides retail investors with enough information to decide whether to purchase tokens. WorldCoin disclosed loans, market makers, and strike prices, but received a lot of criticism for doing so, leading other founders to be reluctant to disclose.

If disclosure were voluntary, no one would disclose. If it were mandatory, like in the securities market, everyone would disclose. Evgeny believes that the best solution would be for market makers to jointly disclose information, but this is a coordination problem. If the exchange requires disclosure, everyone will follow. Venture capital firms can also push for disclosure standards. Market makers can also agree to disclose, but it needs to be unified, otherwise there may be market makers who do not disclose. The exchange is ultimately the primary enforcer. The industry should establish its own disclosure system rather than waiting for the SEC to take action.

Disclosure does not mean that the tokens are securities. More disclosure is a good thing and has nothing to do with securities laws. When going public, there is always an opposing party (foundation or representative) who needs to disclose information. I think the industry needs to mature and rebuild the trust of retail investors. Events like Movement can erode confidence in a token. The disclosure system can give retail investors confidence that tokens will not be sold off.

"When will MASK be released?" This question has been asked in the crypto for almost four years. This time, MetaMask co-founder Dan Finlay finally gave in again in an interview on May 15. Although there is no definite plan yet, it is under consideration. And if it really wants to be sent, it will only be notified through the wallet itself, and will never be sent through private messages to get the airdrop link.

Discussing MASK since 2021: DAO, community governance and progressive decentralization

As early as 2021, MetaMask publicly stated that it was considering launching a native token "MASK" and establishing a DAO:

• MetaMask engineer Erik Marks once proposed in a developer meeting that users could participate in future decision-making through tokens.

• ConsenSys CEO Joseph Lubin even tweeted (X) at the time: "Wen $MASK?", sparking heated speculation in the community.

• In 2022, Lubin further publicly stated that the purpose of this DAO is not governance, but a funding tool, and the token will not be designed to allow short-term arbitrage.

All of these design concepts revolve around one core goal, which is to promote Consensys' "progressive decentralization."

2024-2025 Current status: Not yet, but may be released

MetaMask co-founder Finlay also emphasized in an interview:

“If we do release it, we will announce it directly in the wallet. You will see the link on the interface, so you don’t have to look for it everywhere. It won’t be a private message from an unknown source.”

He warned that there are currently a large number of scams impersonating MASK, and some people even pretend to be MetaMask employees to send airdrop invitations. He reiterated:

"We don't have your mobile number or email address, and we won't contact you in this way."

Will the Trump administration affect token regulation? Finlay: It is indeed a little more relaxed now.

Speaking of changes in the regulatory environment, Finlay believes that the overall atmosphere under the Trump administration is much friendlier than it was during the time of former SEC Chairman Gary Gensler:

“There’s more room to explore new token forms and possibilities now, and everyone can use this time to test boundaries and set precedents, and maybe start the next wave of really interesting innovation.”

However, he also admitted that the Securities Law is still the Securities Law, and many projects are still in a gray area and still need to be handled with caution.

MetaMask status: 30 million monthly active users, user experience continues to improve

MetaMask currently has more than 30 million monthly active users worldwide. Finlay mentioned that in order to face competition from new wallets such as Rainbow and Rabby, the team has been actively improving the user interface and operating procedures over the past year:

“This is an open market with no licensing required, and we know competition will grow faster and hotter.”

MASK is not here yet, but don’t click on random links or jump to conclusions too early

In summary, the MetaMask team is not opposed to launching MASK, but has not given a specific time. Their core position is:

• No hype

• Prevent users from becoming victims of phishing scams

• If it is to be released, it will be announced by the official in person from the wallet

So if someone tells you now that you can get a "MASK for a limited time", please block them directly.