In recent months, DWF Labs has become a particularly active crypto investor, but its methods and strategies have drawn scrutiny from the industry, with some professionals arguing that many of DWF's financing transactions are not typical venture capital investments, questioning its conduct on behalf of investors. Currency selling and washing.
The following content is compiled by the Bitui editorial team based on The Block and Coindesk articles. Note: The Block disclosed that Evgeny Gaevoy , founder and CEO of DWF Labs competitor Wintermute, is a board member and shareholder of The Block.
While crypto industry players have struggled with scandals, bankruptcies, and regulatory repression over the past year, DWF Labs has emerged from a crowd of unknowns to shine on the list of the most active investors in the space, attracting attention. attention and controversy. The Block Pro deal dashboard counts the team's participation in 25 funding rounds, raising a total of $232 million, 18 of which were invested by DWF alone, while the company advertises that it has invested at least $100 million in more than 100 projects .
DWF's capital infusion has sparked speculation about its funding sources and the seemingly opaque, non-standard structure of many VC deals, akin to the hedge fund and market maker Alameda Research that imploded last year, arguing that for all It has legitimate reasons for the doubts raised.
Matt Walsh , founding partner of Castle Island Ventures , said: "This script seems familiar. It ends with retail investors being scammed and SEC enforcement actions. This industry does not need another Alameda 2.0."
DWF Labs was founded in 2018 by managing partner Andrei Grachev —Grachev has worked for Huobi Russia and several encryption trading companies. DWF official website claims that it is a leading "digital asset market maker and multi-stage web3 investment company" in Switzerland, Offices in Singapore, United Arab Emirates and British Virgin Islands. It is an affiliate of Digital Wave Finance, about which little public information can be found, and DWF Labs' website describes it as "one of the largest high-frequency cryptocurrency trading entities in the world, with more than 40 top trading exchange-traded spot and Derivatives.”
Where is the problem with DWF Labs?
Investments in crypto projects generally follow the venture capital model. Projects receive funding from venture capital firms through financing rounds (i.e. pre-seed, seed round, Series A, etc.), and investors, in turn, receive a portion of the equity in the project. In most cases, especially in early-stage investments where the project has not yet launched a token, the investor will receive a Simple Agreement for Future Tokens (SAFT), a contract that spells out what happens if the project launches a token in the future. distributed to investors.
The investment of DWF Labs is mainly aimed at projects that have launched tokens.
A core concern about DWF's approach is that trading startups' tokens is being used as a means of investing in venture capital, and the potential transfer of those tokens to exchanges for sale.
In terms of deal structure alone, multiple industry figures interviewed by The Block raised concerns that some of DWF’s multimillion-dollar investments in crypto startups could be considered over-the-counter (OTC). These over-the-counter transactions allow startups to convert their tokens into Stablecoin, rather than being pre-infused with cash — DWF then shuffles the tokens to exchanges.
A person with direct knowledge of DWF's operations said: "All these 'investments' that you see are not actual investments, they are off-exchange transactions. They are all token purchases. They are off-exchange transactions that are repeated over time .”
Walter Teng, vice president of digital assets at research firm Fundstrat , told CoinDesk: "It's a huge conflict of interest. If you invest, you want the price of the token to go up. If you make the market, you can manipulate the price up by cheating."
"All their 'investments' are cheap disguises for institutional over-the-counter deals, and they post about ' partnerships, investments' Or some other bullshit big announcement, but really, a way for token projects to dump their coffers and keep it under wraps.”
The DWF Labs "Promise"
For example, in late February, crypto privacy startup Beldex announced a $25 million deal with DWF. In an official blog post, Beldex stated that DWF Labs will support it “by committing $25 million to research and development of the Beldex network and ecosystem.” However, in some media coverage of the deal, the word "commitment" was omitted, instead describing it as a straight-up fundraising exercise. A spokesperson for Beldex told The Block at the time that the money had actually been pledged for two years.
The same spokesperson said this week that DWF remains involved with the project as its "marketing and partnership advisor," while also helping introduce others in the industry, including developers and researchers. The arrangement has proved "extremely beneficial to Beldex", they added.
Just this week, CryptoGPT announced that it raised $10 million in Series A funding from DWF Labs at a token valuation of $250 million. However, only $420,000 of the total has been invested so far, CryptoGPT co-founder and CTO Dejan Erja told The Block. DWF started investing last week and the remaining amount will be invested within 285 days, Erja said. As part of the deal, DWF Labs will also make a market for CryptoGPT's GPT token.
DWF Labs' 'unreasonable' deal
Bainy Zhang (Twitter account Hedgedhog), founder of Fisher8 Capital and eGirl Capital , said: "The type and amount of projects invested by DWF Labs are not very reasonable to me, and it seems that they are not prudent enough. The amount of investment DWF allegedly invested in these projects Takes up a high percentage of the project’s token supply. For example, for Beldex’s $25 million investment, this amounts to 5% of its FDV [fully diluted valuation] assuming DWF buys at market price.”
Such transactions can have a huge impact on the price of a project token once the news becomes public. Within days of announcing the deal with Beldex, the price of its BDX token jumped about 50%, from $0.04 to $0.06, and is now around $0.057, according to data from CoinGecko .
A project called Tomi, which aims to build an alternative internet, said it raised $40 million from DWF Labs on March 22. In the short-term, its token price surged from $1.30 to $4.30 before falling to its current price of around $2.58. Prices also rose after The Block reported that DWF Labs had committed to buying $10 million worth of tokens issued by crypto infrastructure project Orbs .
"I don't see anything wrong"
In an interview, when asked whether his investment was an upfront venture capital check or an OTC compound market-making model, Grachev was not introspective.
"We deploy our money, we deploy it according to our risk management. Frankly, I don't see any problem, I don't care what other market makers/investors are doing. Because our main goal is not to imitate What other market players do, our goal is to keep our partners happy."
Moving on to the issue of DWF moving its token investments to centralized crypto exchanges, which users have spotted by tracking on-chain data, we wonder if this means DWF is selling tokens.
One example: DWF's strategic partnership announcement with Derivatives trading platform Synthetix . According to a March 16 press release, the firm said it acquired the project’s $15 million native token , SNX, “to enhance Liquidity and market making,” and quoted Grachev as saying, “We are excited to invest in Synthetix. "
Blockchain data shows that DFW’s wallet — flagged by crypto research firm Nansen — received 5.3 million SNX directly from Synthetix’s treasury wallet between March 14 and March 16. The company then transferred all tokens to Binance in multiple transactions between March 16 and 20.
Another example is the company's investment in Web3 influencer platform So-Col . DWF’s website says it made a “round” of $1.5 million in February by purchasing So-Col’s native token, SIMP. So-Col founder Irene Zhao said the tokens will have a vesting period of one year, ending in February 2024. The post made no mention of other services besides investing.
However, Nansen’s data on the ethereum blockchain shows that DWF’s crypto wallet received 3.3 million SIMP tokens between March 6 and March 24. During the same period, DWF sent about 2.6 million tokens to the KuCoin exchange before transferring the rest to an unknown wallet on March 30. After the March 28 announcement, SIMP nearly doubled in a week from around 1.7 cents before falling to 1 cent on April 4.
When asked about the changes, Grachev pushed back on the notion that the company was being sold for a profit. Instead, he said DWF found it safer to leave tokens on an exchange than to use an on-chain wallet.
Grachev said in an interview: "We transfer tokens to exchanges, but we never sell, and if we send tokens to an exchange, it does not mean that we will sell them immediately or in the near future. .We always send tokens to exchanges because we store tokens on exchanges. It’s a more comfortable way for us to manage our inventory.”
In a separate tweet this week, he added: "Crypto [market makers] must be prepared for emergencies and extreme volatility, and have available token and Stablecoin inventory for 24/7 Liquidity purposes .”
Funding of DWF
DWF's big spending has also left some in the industry wondering where its money is coming from. DWF Labs has no outside investors and has been funded from its trading activities since the company was founded in December 2018, Grachev said, and it also has some cryptocurrency-based loans.
In addition to running DWF Labs, Grachev’s LinkedIn profile shows he has held several other positions over the past five years — all involving trading and cryptocurrencies.
From 2018 until last June, he served as CEO of a high-frequency trading firm called VRM.Trade. From May 2018 to July of the following year, he worked as Vice President of Trading at a Moscow-based company called Racib. Before that, he also ran another cryptocurrency company called Crypsis Blockchain Holding, also in Moscow, according to LinkedIn.
Starting in September 2018, Grachev also served as CEO of the Russian branch of Huobi for a period of one year. Huobi Russia closed in 2020. "Due to a strategic shift within the Huobi Group, both parties have reached an agreement to terminate this partnership," a Huobi spokesman said.
While Grachev has been keen to defend himself in interviews and on social media, many in the crypto industry remain skeptical.
Matthew Howells-Barby, an angel investor and former chief marketing officer at Decentral Games , said: “At a time when most other VCs are tightening their belts, DWF is investing tens of millions of dollars a week in – mostly – OTC token deals, and it feels Something is wrong."
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