DWF Labs, a new player in the crypto venture capital space, has made headlines in recent months for its investments in various crypto projects. However, a closer look reveals that DWF Labs is not exactly a venture capital firm, but rather an over-the-counter (OTC) trading desk. The company typically approaches a crypto project with a token and offers to buy millions worth of the token at a discount to market value. While DWF Labs refers to these deals as “investments,” the company primarily selects for projects that have already launched a token, and the investments are more ad hoc in nature.
Industry observers have grown concerned about DWF’s recent activity and seemingly packaging different services under partnerships. Some have called it a “massive conflict of interest,” as market makers want the token’s price to go up, while market making firms can manipulate the price to go up by spoofing. DWF Labs’ managing partner, Andrei Grachev, defended the firm’s token maneuvers, stating that market makers should create markets, provide depth, and improve order execution instead of doing nothing and waiting when the market is skyrocketing to execute its call options.
DWF Labs launched in September as an investment-focused arm of Digital Wave Finance, a top high-frequency trading firm that trades spot and derivatives on over 40 exchanges. Grachev told CoinDesk that DWF Labs’ funding comes from the money earned from profits of the high-frequency trading business. While he said that DWF Labs “usually do not include market making deals in our venture side,” he later admitted that “we have pure investments without market making, we have market making [agreements] without investment, and we have [them] combined.”
DWF Labs’ investment strategy focuses on five sectors: TradFi, DeFi, GameFi, CEXs, and artificial intelligence. The company prefers to have tokens but also has several equity deals. However, Grachev noted that equity is not the firm’s strong side. As a market maker, DWF Labs supports its portfolio, and if the company invests, it will provide much more liquidity to the project compared to if it doesn’t invest.
While DWF Labs’ recent activity has raised concerns, it is not uncommon for market making firms to have venture capital arms. Jump Crypto and Wintermute, two heavyweights in the crypto market-making sector, both began as trading firms. But both have since expanded into cutting venture checks for projects and even building their own pieces of core infrastructure. The industry standard is that these contracts should be separated, although the lines between the two divisions can be blurred sometimes by the market makers.
In conclusion, DWF Labs is not a typical venture capital firm but rather an over-the-counter trading desk that primarily selects for projects that have already launched a token. While the company refers to its deals as “investments,” industry observers have grown concerned about its recent activity and seemingly packaging different services under partnerships. Despite these concerns, it is not uncommon for market making firms to have venture capital arms.