Unchained
The show “Unchained” is hosted by Dragonfly partners Haseeb Qureshi, Tom Schmidt, Robot Ventures founder Tarun Chitra, and Compound founder Robert Leshner. In this episode, they invite the CEO of the renowned market maker Wintermute, Evgeny, to discuss the impact of market makers on the market and the recent Movement incident. Movement co-founder Rushi resigned due to allegations of signing strange contracts with external market makers. Currently, the team members have formed Move Industries to take over Movement.
Movement Labs Rapidly Cuts Ties with Co-Founder, MOVE Token Insider Trading Triggers Major Shake-up
Movement Labs signed agreements with external market makers that allowed them to liquidate tokens if Movement’s FDV exceeded $5 billion, with profits from sales split equally with the Movement Foundation. This arrangement effectively encouraged market makers, who were supposed to provide liquidity neutrally, to drive up the token price and sell off afterward.
Such an arrangement not only allowed market makers to profit, but the Movement Foundation also shared in the profits. They allocated 5% of the total token supply to a single market maker, a huge amount compared to the circulation (less than 10%). The day after the listing, they sold off $38 million worth of MOVE tokens, resulting in Binance freezing the relevant accounts. Rushi was accused of colluding with the market maker and stepped down. Currently, Movement is run by Move Industries, with the former BD head Torab as CEO and CMO Will as president.
Market makers often profit from token issuers, exchanges, and options. To get listed on exchanges like Coinbase or Binance, token issuers must negotiate with large market makers like Wintermute. Standard market-making agreements usually include KPIs such as market-making hours, spread widths, and order book depth.
In return, market makers are compensated in several ways, one of which involves the token issuer lending tokens to the market maker so they can maintain an inventory for market-making. Additionally, market makers might be compensated in cash or through an options structure. If the token succeeds, the market maker can retain some tokens at a pre-determined price higher than the initial listing price.
Regarding market makers, Wintermute’s CEO Evgeny explained that market makers usually receive compensation from the project side in a structure similar to call options. When the agreement ends, market makers can choose not to return the borrowed tokens but instead repay in stablecoins or USD at a strike price, usually 25-50% higher than the time-weighted average price (TWAP) after listing. This is the typical structure, but Movement’s contract lacked a call option or similar structure.
Market Maker Leader: Web3Port Contract Unprecedented
With options structures and strike prices in place, why don’t market makers manipulate the price of every token? The problem lies in the size of the incentives. A market maker might receive 0.5% of the token supply, but typically less, depending on the agreement’s market cap. However, even if you’re a market manipulator, with such an options structure, you would still need to stabilize the price before expiration after driving it up.
Usually, if market makers fail to provide buy and sell quotes in an automated manner, the token issuer can cancel the entire agreement, causing the market maker to lose the option. Attempting to sell off tokens after driving up the price could lead to a price drop. Therefore, incentives must be sufficiently large to push up the price while still enabling the market maker to cash out afterward. In the case of Web3Port, the clear sell incentive after a $5 billion valuation was particularly intriguing.
Even more interesting, Web3Port provided Movement Foundation with a massive $60 million in funding as collateral for completing the contract. For Wintermute, this was unimaginable. This sum was so large that even with a 5% token supply allocation, the market maker’s income primarily came from trading. It was an opportunity cost issue—using $60 million for perpetual contract strategies, market-making strategies, or DeFi could yield returns.
Receiving tokens under the agreement while paying $60 million as collateral essentially encouraged the market maker to drive up the price and sell off as many MOVE tokens as possible to reclaim their funds, otherwise losing returns from idle capital every day. Evgeny pointed out that this was an unethical and uncommon agreement. As a leading market maker, he only learned of its existence months ago when Binance kicked Web3Port out.
Evgeny noted that market makers are also “serial entrepreneurs.” Many market makers from Asia do not publicize themselves and re-enter the business after scandals explode. However, for tokens listed only on secondary exchanges and never on Binance or Coinbase, this isn’t rare. Many so-called market makers are actually a means for founders to illegally cash out. They claim to provide liquidity but are actually taking tokens, dumping them, and sharing profits with the founders, which is exactly the structure of the Web3Port agreement.
Robert Leshner stated that these scandals happen frequently, but the public is unaware of the details behind them. There are likely many more unreported dramatic incidents every day because they fail to attract attention from outlets like CoinDesk. After reading about this, he thought it resembled a farce.
He analyzed that this incident showed market makers misbehaving while the team didn’t know how to negotiate properly. These bad terms and incentive mechanisms were a disaster. Now, people have a better understanding of how market makers operate and hope to see more stories reveal the truth behind them, as transparency is still too low. He also added that he believes market makers find it hard to engage in these activities without the agreement being aware of it. Most of the time, agreements claiming ignorance are actually aware.
In the case of Movement, they were clearly aware. You could see in the emails that the foundation’s response was, “What is this nonsense, this is the most ridiculous agreement I’ve ever seen.” But a few days later, they still signed it.
Interestingly, Kaito recently posted that Web3Port had been a partner market maker but felt that Web3Port’s execution deviated from its original intent, leading them to terminate the partnership quickly.
Movement’s Execution Ability Becomes a Major Hidden Risk
Tom Schmidt remarked, “Movement is strange; it’s not a top-tier project, but it’s not a nobody either. With investors like Robot Ventures, the product has some potential. Someone should have stepped in to stop it. Movement’s team was praised for being young, energetic, and ambitious. Naturally, people ask, why did they do this? Why would the founders choose to go down the wrong path? They have successful projects, so many supporters, why sell tokens and cash out early instead of focusing on the product?”
They have long been criticized for launching tokens before the mainnet went live, with rumors that they heavily relied on contractors and lacked a strong technical team, focusing too much on marketing rather than substance. This raised concerns, mostly rumors with no solid evidence. However, some say they manipulated circulation, didn’t do airdrops, and launched tokens before having a real product. All of this points to problems with the project.
It was surprising that a project of Movement’s level exploded into a scandal.
After the Movement incident, Haseeb discussed it with some people and came up with a few questions. First, how will this change your view of startups or founders? Second, what incentive mechanisms does this reveal about founders in the industry? Are there countless founders like Rushi? Personally, I don’t think so. That’s why Movement has so much attention and FUD. I’ve seen many unconfirmed claims on Twitter, but other projects rarely face such situations.
Regarding Movement, after seeing these claims, people feel that sooner or later, there will be evidence proving their unethical actions. But I don’t think there are many projects like this. They might be on secondary exchanges, but not in the top 100. With a market cap like Movement’s, incidents like this are rare, which is why it has attracted so much attention.
Haseeb read an article from Cointelegraph, which mentioned market maker agreements and cited a Web3 consulting firm’s perspective. I searched before the show and think people may be underestimating the number of long-tail garbage projects. These projects are worthless but numerous. These projects will go to secondary exchanges and find such market makers. But something like this happening to a high-profile project like Movement, valued at $3-4 billion, is indeed crazy. It’s now down over 80%, almost a straight-line decline.
As for what to watch for when evaluating new tokens in the future? Evgeny said he’s sensitive to such high-profile, marketing-driven founders. But in Silicon Valley, traditional venture capitalists usually like these energetic, aggressive founders, which sometimes aligns with fraudulent behavior.
Young, Ambitious Founders as a Warning Sign
Haseeb stated that Dragonfly did not invest in Movement, not because they doubted their ethics or thought they would dump tokens or violate lock-up periods. They just felt the technology wasn’t interesting enough and was a derivative project. He had met Rushi only once or twice, and the impression was that most investors thought he was energetic, charming, and ambitious. Blockworks had an article praising Movement, repeatedly saying, “They’re young, they’ve raised a lot of money.” This has become a meme. Being on Forbes 30 under 30 is usually a red flag.
Robert Leshner stated that he was a small investor and not an early participant, so he didn’t know the team well. He believes that everyone involved should learn from this experience and improve business transactions and transparency for the fairness of the entire ecosystem.
Regarding his view of Rushi? He said that in Series A, this wasn’t purely founder-driven investment. Early investments are about betting on the founder, but later investments are more focused on traction (technology, funding, etc.). He invested in Series A, and if it had been earlier, he would have looked deeper into the team.
Wintermute CEO Leads: Industry Should Establish Market Maker Disclosure Standards
As for what the industry should learn from this? Haseeb suggested that, in traditional markets, market makers are required to disclose, and cryptocurrency should be the same. Exchanges know who your market makers are, but retail investors don’t. The ideal disclosure system is one where there is no information gap between exchanges and retail investors. Public should know everything the exchanges know when applying for listing. Even the terms of market maker agreements should be public.
As a leading market maker, Evgeny fully supports this system. To put it bluntly, cryptocurrency is really like securities. IPOs require disclosures about market makers, investors, risks, etc. Disclosure allows retail investors to have enough information to decide whether to buy tokens. WorldCoin had disclosed loans, market makers, and strike prices, but received heavy criticism, leading other founders to avoid disclosure.
If disclosure is voluntary, no one will disclose. If it’s mandatory, like in securities markets, everyone will disclose. Evgeny believes that market makers disclosing together would be the best solution, but it’s a coordination issue. If exchanges require disclosure, everyone will follow suit. Venture capital firms could also implement disclosure standards. Market makers could agree to disclose, but it needs to be unified; otherwise, some market makers may not disclose. Exchanges will ultimately be the main enforcers. The industry should establish its own disclosure system instead of waiting for the SEC to intervene.
Disclosure does not mean the token is a security. More disclosure is a good thing and has nothing to do with securities laws. When listing, there will always be opposing parties (foundations or representatives) needing to disclose information. I think the industry needs to mature and rebuild retail trust. Incidents like Movement will erode confidence in tokens. A disclosure system can make retail investors believe that tokens won’t be dumped.
Risk Disclaimer
Cryptocurrency investments are highly risky, and their prices can fluctuate significantly. You may lose all your capital. Please assess the risks carefully.