Author: @dittochu_
Compiled by: @GodotSancho
If you find that $griffain is in a continuous downtrend and want to know when it will stabilize, you can analyze the "Wintermute Pattern".
Wintermute is a cryptocurrency market maker, and one of their important businesses is to help small projects (Alts) list on top-tier platforms (such as Binance).
Investors have discovered that when Wintermute participates in market making for a project, the token price often exhibits a specific pattern, known as the "Wintermute Pattern".
Why does the price of a project usually drop first and then rise when Wintermute is involved in market making? To answer this question, we need to understand their trading strategy.
Wintermute employs a Delta Neutral strategy, using hedging measures to eliminate the risk of directional trading.
In the market making process, they often reach an agreement with existing token holders, borrowing tokens from the project or whales, and simultaneously buying call options to profit when the price rises.
Taking $griffain as an example, let's assume they borrowed 40 million tokens, which is 4% of the total supply. Then, they will sell a portion of $griffain, converting it into SOL or stablecoins to provide liquidity. Essentially, this is a short operation, where they profit by borrowing tokens and selling them.
The token sale causes the price to drop. Wintermute will then buy back $griffain at a lower price, as they need to return the borrowed tokens, i.e., close their short position. At the same time, they avoid triggering significant price fluctuations during the buy-back trades. This is how they make money during the price decline.
After the price has dropped, over the past few days, they have been making small $150 buy-backs of $griffain, executing dozens of orders per minute.
Ultimately, Wintermute will buy back all the $griffain they previously borrowed. Once the buy-back is complete, the price will rebound. They profit from the short, and this revenue may be used to pay the listing fees on the exchange. At this stage, the trading volume of $griffain will also increase significantly, which helps convince the exchange to list it.
When $griffain is listed on a top-tier platform like Binance, the price will surge. This is where the call options they bought earlier come into play. The strike prices of these options are typically 25% to 50% higher than the market borrowing price. However, due to the market maker's operations, the strike prices have recently been pushed up to 60% to 70% above the borrowing price.
Now, let's take a look at the on-chain data. First, we need to try to determine which stage of the so-called "Wintermute Pattern" Wintermute is currently in.
One of the tools we can use is Agent Scarlett ($agency). This is a project that has received a $3 million investment from a16z and ElizaOS, and currently has one of the best on-chain analysis capabilities in the market. While there are some free-to-use areas of this tool, I will be using the one in the a16z Discord public channel.
Using the Scarlett tool, we can see that Wintermute has already started to re-accumulate $griffain. Through Solscan data, we can also see that Wintermute's first involvement was on January 23rd, which coincides with the recent peak of $griffain.
In summary, the market maker is very clever, as they can make money during both the price decline and the price increase. When Wintermute gets involved, their market making behavior can disrupt the price trend, but in exchange, your token may be listed on a top-tier exchange.
Don't forget that Wintermute holds call options on $griffain. When they finish their short, a top-tier exchange is likely to list $griffain. To allow them to profit from the options, the price may need to rise 25% to 70% from the level at which they borrowed. The price on January 23rd was around $0.50. If the Wintermute Pattern is fully formed here, we may see the $griffain price reach $0.60 to $0.85 in a few weeks.
