Basis Markets Investigation — Part 6— Blockchain — Seed Liquidity and ‘spoofing’
TL;DR
- The CFTC filed and settled charges against Adam Cobb-Webb (TraderSkew) on August 1st 2023 for engaging in multiple instances of spoofing in West Texas Intermediate (WTI) light sweet crude oil futures contracts traded on NYMEX from approximately December 16, 2021 through at least January 14, 2022.
- Basis Markets minted 10M $BASIS tokens as seed liquidity on Dec 11th, 2021, and transferred them to wallet 7rrL
- The 7rrL wallet appears to have been used to manipulate the price of the BASIS token in concert with another wallet, 6S9c, in a manner that appears to have many of the characteristics of “spoofing”.
- The pairing of wallets 7rrL and 6S9c appear to have initiated and participated in a pump on Dec 18th, 2021 where the price of $BASIS moved from 15c to 21c, reflecting an increase of >40% in an hour
- The pairing of wallets 7rrL and 6S9c also appear to have initiated and participated in a pump on December 24th, 2021, where the price of $BASIS moved from 18c to 23.25c, another increase of >25% in an hour.
- The 7rrL wallet was used to sell short the BASIS token using a leveraged yield farm at just below the IDO price.
- The 7rrL wallet was also used to sell the $BASIS token into the January 24th low, putting in large orders to sell at 4.65c, 4.1c and 4c.
- By the start of March when the 7rrL wallet was closed, it appears that all or almost all of the 10M seed liquidity were sold off, just in time for DAO Proposal 001 which urgently proposed a solution to the lack of liquidity…..
Introduction
Welcome to Part 6 of our series on the investigation into the activities of Basis Markets. This part examines what happened to the very first set of tokens minted, the 10M $BASIS tokens that were minted on Dec 11th for the purpose of seed liquidity provision
We start this part by thanking @theflowhorse on twitter for alerting us to the CFTC order against Adam Cobb-Webb from August 1st, 2023 for engaging in multiple instances of spoofing in West Texas Intermediate (WTI) light sweet crude oil futures contracts traded on New York Mercantile Exchange, Inc. (NYMEX) from approximately December 16, 2021 through at least January 14, 2022. This conduct violated Sections 4c(a)(5)© and 6(c)(1) of the Commodities Exchange Act, 7 U.S.C. §§ 6c(a)(5)©, 9(1), and Regulation 180.1(a)(1), (3), 17 C.F.R. § 180.1(a)(1), (3) (2022).
https://twitter.com/TheFlowHorse/status/1698708079359988021
More detail is available in the CFTC press release as well as in the CFTC order. This is not the first run-in that Adam Cobb-Webb has had with the authorities, as it appears he had a run-in with the CME in 2015. As we will cover in more detail in a future installment looking regulations, it appears that Adam Cobb-Webb’s has a particular perspective on what rules do and don’t apply to his behavior.
Yes, the above video was posted on the Basis Markets youtube channel. Was originally part of MacroHedged and then TraderSkew’s crypto video series. It appears TedTalksMacro decided to include it in the educational series, first posting it in May 2022, and only making it private after it was highlighted in the comments to @theflowhorse’s twitter post. The above is only a short 25 second excerpt from the almost 15 minute video where Adam Cobb-Webb appears to demonstrate some spoofing-type techniques using Quantower on the FTX exchange.
It is noted that during the period covering both the CFTC order and the activity desscribed below, Adam Cobb-Webb was a Trading Principal and Chief Investment at a Commodity Trading Advisor, BlueCreek Capital.
https://web.archive.org/web/20210412162428/https:/www.bluecreek.capital/
PRIVACY POLICY
How do we know that TraderSkew is Adam Cobb-Webb? Well, it appears that the team confirmed it on the Basis Markets Privacy Policy page in November 2021, where Adam Cobb-Webb was listed as the Data Controller for Basis Markets. Yes, it appears that Mr Cobb-Webb doxxed himself in the Basis Markets Privacy Policy. We note that even though Mr Cobb-Webb is designated as the Data Controller, Basis Markets is not registered under the UK GDPR.
So, after reviewing the CFTC order against Adam Cobb-Webb for spoofing behavior between Dec 15th 2021 and Jan 14th 2022 (thanks again @theflowhorse), we thought we might revisit the seed liquidity wallets, because there was alot of action in those wallets across that period. Maybe, who knows, maybe even a little bit of action that could be considered to be “spoofing”………..
SEED LIQUIDITY
As part of the $BASIS token raise, the founders made a commitment to provide liquidity so that the AMM (automated market maker) on the Serum decentralized exchange (DEX) could make a market in the $BASIS tokens after listing on the DEX. In the prospectus, the team had allocated 5 million BASIS tokens for liquidity provision, along with a matched amount of USDC so that the AMM could function in making the market (as at right).
Rather than setting aside 5M tokens, it appears that the Basis Markets team actually minted 10M tokens for the purpose of seed liquidity provision. 10M tokens were minted at 16:48pm on Dec 11th, 2021, before the IDO concluded, and before the founders paid themselves a) their locked tokens and b) 2.48M USDT each from IDO raised capital (see part 4). 1 minute later, these 10M tokens were moved to wallet 7rrL. 7rrL had been initiated the day prior with a 1 SOL transfer from another Basis wallet J4wcm.
In the below image, we can see the $BASIS token flows from December 2021 to the closure of the 7rrL wallet in the first days of March (when Andreas disappeared). At far left we can see 10M tokens being transferred from SAjoy (Basis mint authority wallet) to the 7rrL liquidty bootstrapping wallet. We can also see 4M tokens come in from Adam Cobb-Webb / TraderSkew’s 8iKY wallet, and be transferred to a mystery wallet GqVT.
At the top, it is possible to see that 27M tokens go into Raydium, and 27M come back out of Raydium, which is the seed liquidity provision bootstrapping to provide the liquidity to the market maker. In a similar manner, 10M go into Orca and 11M come back out, and these are mostly for liquidity provision once the Orca rewards came online in January 2022, when Orca mostly took over the primary job of liquidity provision from Raydium. But beyond this high level view of liquidity provision, with close to net matching of in and out in Orca and Raydium pools, there appears to be a large net transfer of Basis tokens from 7rrL to Serum. These are not lending / liquidity provision, but appear to reflect mostly limit orders to sell BASIS tokens to the Serum DEX. There is also over 5M sent to 6S9c wallet, which is a wallet that deserves a lot more scrutiny.
What we can say from this high level view across 4 months is that is appears that 10M tokens went in to wallet 7rrL to be used as seed liquidity (even though only 5M were supposed to be minted), and a large proportion of these tokens were sold off to Serum either directly in 7rrL or in the secondary wallet 6S9c. By March 1st when it appears Andreas disappeared and this 7rrL wallet was closed, basically all 10M seed liquidity tokens had been sold off, leaving no project-owned liquidity (protocol owned liquidity). It is noted that come April 2022, after passing the DAO governance framework, the very first proposal from Cryptoboole was to extend the Orca liquidity provision, presumably because the seed liquidity had all been sold off.
What this high level picture does not show is how the seed liquidity was used. On the face of it, the simplest approach that would minimize impermanent loss, would be to simply deposit the 10M tokens with matching USDC and simply leave it alone, or maybe make one transaction to partly redistribute the liquidity from 100% Raydium to split it between Raydium and Orca once the Orca AMM was operational from January 2022.
But that is not what happened. It starts out behaving as expected, but then there is a marked shift in how the tokens are used. In the first 5 days after the IDO, this 7rrL wallet does indeed appear to have been used for liquidity bootstrapping. In the period 11th Dec to 16th December, 10M basis were received from the SAjoy mint address, another 713k bought from Raydium, and 5.678M of the available Basis tokens were sent with matching USDC to the Raydium liquidity pool wallet (5Q54). The matching USDC was sent to the 7rrL wallet from the EB5V Basis Markets wallet that received the remaining 5.8M USDT from the IDO proceeds.
But the next week proves somewhat different. Instead of the 5.6M Basis provided as liquidity staying in the Raydium pool, in the next week there is a number of add and remove liquidity actions, with 9.6M going in and 12M coming back out of the Raydium liquidity pool, a net removal of 2.3M tokens. We can also see a net of 1.8M tokens being sold to Serum as limit orders (2u3i). But there is also the new appearance of 6S9c, which appears to have had a net 4.5M tokens sent to it. This is assumed to be a second liquidity provision wallet owned by Basis Markets, even though it was initiated by wallets known to be TraderSkew’s wallets. The activity in 6S9c appears to have a mix of activity that could be interpreted as Basis Markets activity, and some activity that appears to be more likely to be TraderSkew personal activity.
The apparent change in behaviour of the Basis Markets 7rrL wallet after December 16th, 2021 in shifting from straight liquidity provision to a mix of buys and sells is interesting. The reason it is interesting is that December 16th is the reported start date, according to the CFTC, of spoofing activity by Adam Cobb-Webb in the West Texas Intermediate (WTI) contract. This conduct violated Sections 4c(a)(5)© and 6(c)(1) of the Commodities Exchange Act, 7 U.S.C. §§ 6c(a)(5)©, 9(1), and Regulation 180.1(a)(1), (3), 17 C.F.R. § 180.1(a)(1), (3) (2022).
Dec 18th, 2021 “pump”
If we look a little closer at the market action of the 7rrL and 6S9c wallets, there are 2 periods that are of particular interest. The first is Dec 18th, 2021. At 21:30pm on the 18th, the 7rrL wallet removes the liquidity that they had been providing. They removed 700k USDC and 4.66M Basis, followed shortly thereafter by 225k USDC and 1.49M Basis. At this point, the 7rrL wallet was the predominant liquidity provider for the Raydium permissionless pool automated market maker (AMM). The initiating event for the pump appears to be the removal of liquidity.
Having withdrawn a very large proportion of the available liquidity (estimated to be >80% of the liquidity in the AMM) back to wallet 7rrL, the activity shifts to the 6S9c wallet, which proceeds to enter a series of buy limit orders, starting within 5 minutes of liquidity being withdrawn in 7rrL. A series of 19 buy limit orders are made in 6S9c from 21:36 through to 21:49pm ranging in size from 65k Basis to 247k Basis. There are also a total of 13 order cancellations during the same period. During this period, the price of Basis moves from 15.1c to 19.5c, which represents almost 30% price increase over the course of less than 15 minutes. At the end of this period, the 6S9c wallet has run out of USDC to continue to make buy orders. A full list of the transactions in this pump are detailed in the below airtable, showing the initiation by withdrawing liquidity, then a series of quick buy limit orders and cancellation of those orders.
At 21:52:01pm, having run out of USDC in 6S9c, 100k USDC are sent from wallet 7rrL to wallet 6S9c. 31 seconds later at 21:52:32pm, wallet 6S9c makes a buy limit order for 512k Basis at 19.5c. One minute later, at 21:53:31pm, whoever is operating the 7rrL wallet adds liquidity back to the automated market maker, which in theory would limit the extent of any counter move as the market has a greater depth of liquidity thanks to a refilled AMM. We believe that it is most likely that both wallets 7rrL and 6S9c are being operated by the same person, quite possibly Adam Cobb-Webb, but cannot exclude the possibility that the coordinated action involves 2 separate people in close communication.
18 minutes later at 22:11:25pm, the 7rrL wallet again withdraws all of its liquidity provision from the AMM, at which time the calculated price is at 19c based on the ratio of Basis : USDC in the withdrawn liquidity transaction. 30 seconds later at 22:11:55pm, 150k USDC is transferred from 7rrL to 6S9c. The 6S9c wallet follows up 2 minutes later with a limit buy order of 707k Basis at 20.5c, using all of the available 150k USDC, with the order cancelled another 2 minutes later. At 20:18pm, the 7rrL adds liquidity back into the automated market maker. At the end of this addition of liquidity, the automated market maker had gone from 795k Basis to 3.93M Basis, and from 165k USDC to 832k USDC. This reflects an increase in liquidity of approximately 5 times. With the removal of liquidity less than 2 hours earlier, being a reduction of 6M Basis and 925k USDC, it is not unreasonable to estimate that the liquidity pool had been reduced by at least 80%.
So, between 21:30:17pm, when 925k USDC liquidity was withdrawn at 15.03c, and final re-supply of liquidity at 22:18:22pm, less than an hour later, the price of Basis had moved from 15c to 21.26c, an increase of >40% in less than 1 hour.
It remains possible that some other wallet initiated the pump, and that 6S9c was merely following some other actor’s lead. Given the timing of the withdrawal of liquidity occurring so soon before the pump started, we consider this possiblity to be highly unlikely. We are attempting to reconstruct the full sequence of transactions that occurred during the 1 hour period of the pump, to see which other wallets might have been involved beyond 7rrL and 6S9c. Preliminary examination has yet to identify an alternate wallet participating in the pump in any manner that could suggest that the 7rrL and 6S9c wallets were “followers” rather than “initiators”.
The “Christmas eve” pump
The second identified pump again appears coordinated through Basis Markets wallets 7rrL and 6S9c. At 10:34am on 24th December 2021, 7rrL sends 740k USDC to wallet 6S9c. At the time that this 740k is received, the price is sitting at 18.2c, and there have been no trades in the prior 5 minute bar. Less than 1 minute later, wallet 6S9c places an order to buy 240k Basis at 18.7c, and then a further 34 buy orders over the course of the next 80 minutes. The wallet also places 25 instructions to cancel orders, usually within 10–20 seconds of the buy order. Given these transactions are occurring on the solana blockchain rather than a centralised exchange database, it appears likely that the orders are manually cancelled almost as soon as they are placed.
The below image only shows 9 of the 35 buy orders for clarity. Unlike in the prior example, there was no analogous removal of liquidity directly before the buying activity started. There was a removal of liquidity, however it occurred about 24 hours before hand. The trigger for this buying activity appears to be the fresh arrival of 740k USDC at 10:34am, at which time the price of Basis is 18.21c. After the purchase activity, the price of Basis is moved to 23.25c, representing at least a 25% increase in the course of less than 90 minutes.
One interesting potential element to this particular price action is a claim Adam Cobb-Webb made in Discord. He claimed to be the buyer at 0.23. We interpret this to suggest that Adam Cobb-Webb may indeed have been the individual involved in executing the market activity in the 6S9c wallet on December 24th, 2021. Given the frequency of fast cancellations of manual buy orders, this pattern of activity could be considered similar to that described by the CFTC in their “spoofing” order.
Selling and “selling short” — wallet 7rrL
From the end of the above described pump on December 24th, at which time the price was very close to an all time high, the activity in the 7rrL wallet after that date is almost exclusively on the short side, ie selling tokens. The day after concluding the above pump price action was Christmas day. Wallet 6S9c received 6M Basis from wallet B2AM, a known wallet of Adam Cobb-Webb / TraderSkew. These 6M tokens were sold off in wallet 7rrL using limit orders that appear to have been placed below the market price. But much more detail on this selling of “locked” tokens will be provided in the next instalment.
On January 14th, there are 4 interesting transactions. The first involves wallet 7rrL removing the last of its liquidity provision from Raydium pool, which involves retrieving 5M Basis and 446k USDC.
Liquidity removal — Source: https://solscan.io/tx/4hUZdJL2AQ9umcVVg89fmif4vSj7JxxC3XUaUwzehfFPjFb9Mt5jDAFMHWXB3fmx6FTF7TsDRQxVz46ARoJVDsri
Just over a minute later at 10:06am, the 5.06M Basis are swapped for 423k USDC. This leaves the wallet with 0 Basis and 870k USDC. It is noted that this transaction occurs at the calculated price of 8.35c, which is very close to the IDO capital raise price for the token. So, the primary liquidity provision wallet for Basis Markets is noted to be selling 5M tokens at approximately the IDO price.
Swap 5M Basis for USDC — Source: https://solscan.io/tx/5qJg2znmGySMuvVuw9M48d7V1caxdpGk45r3P8AGVFJgzKEqUrm3vDyeEtiK11fhFAdtZVLszHDp4JJmKHMa2KDA
3 minutes later at 10:09am, the 7rrL wallet deposits 400k USDC into Tulip, and borrows 4.952M Basis. This is a synthetic short in a leveraged yield farm on Tulip. By providing USDC and borrowing Basis, the 7rrL wallet would benefit if the price of Basis declined. At the end of this transaction, the USDC balance in the 7rrL wallet is 470.3k. Again, it is noted that the primary liquidity provision wallet has sold a full 5M Basis tokens, and use the USDC proceeds to short their own token at around the IDO price.
Selling short on Tulip (LYF)— Source: https://solscan.io/tx/26UNXHyobqFYTs1EZ7LzzZVUDhnwEhXtTALjgmfmkiNp2SEP21JgBCYoB4AUULMmuMUsvjFsqatmUe1pz3JJr3LV
1 minute later at 10:10am, the 7rrL wallet transfers 104.111k USDC to the 8eDH wallet that is Adam Cobb-Webb’s primary solana wallet, and which has the solana name service name of traderskew.sol. At the end of this transaction, the USDC balance in 7rrL is 366.22k USDC.
Transfer USDC to TraderSkew.sol wallet — Source: https://solscan.io/tx/3vmnxiXV6imRRYS3KJA5HM7YyGTiwWSoxLQzpo3q44H8QZN9eH8rrMTriYSAY4QCVpHCecW4a1htmhxLkkUmyJ1A
Less than a minute later, 366.22k USDC are deposited into Tulip, borrowing an additional 4.5M Basis to increase the size of the synthetic short position that the 7rrL wallet now holds. This larger position would continue to benefit if the price of Basis went down. At the end of this transaction, the 7rrL wallet holds no USDC in its wallet, and no Basis either, as almost all of the previous long liquidity provision position has been converted into a synthetic short position, minus 104k sent to Adam Cobb-Webb’s personal wallet.
Selling short on Tulip (part 2) — Source: https://solscan.io/tx/54dDvUydfKwEGFwMU5XAKSq5L49M7WNgqWELd2azyLYe8Yq6XT8xG4cqxhMD6NkG4xouAF8NFBKH7y2ZF61otzXX
So not only does it appear that the 7rrL wallet was used to pump the price twice in December, and then used to continually sell tokens down into January 14th, but once the price got close to the IDO price, it appears that the 7rrL wallet was used to remove liquidity, sell the Basis for USDC and use the USDC to create a synthetic short position.
Selling the bottom (buy high, sell low)
Over the course of the following week, during which the 7rrL wallet holds a short position, price continues to decline. Leading in to what would eventually become the short term bottom on the 23rd of January, there were a series of transactions in 7rrL which started removing liquidity from the Raydium liquidity pool from the 21st of January. There were 4 remove liquidity transactions over the course of the 21st — 23rd of January, with each transaction being followed within 5 minutes by a subsequent transaction placing a limit order to sell almost all of the recently freed up Basis tokens. These transactions were to sell 1M Basis at 4.96c, 2M Basis at 4.66c, 1M Basis at 4.1c and then a further 365k at 4.0c. As can be seen from the image below, the Basis Market wallets both bought the top at 23.25c and sold the bottom at 4c.
What is that saying? Buy high, sell low? Sounds about right.
And in the middle of buying high and selling low, maybe consider selling short your own project by using a leveraged yield farm, using project funds in a project wallet. And maybe consider throwing in lots of order cancellations over the same time frame as the period (Dec 16th 2021 — Jan 14th 2022) covered by a CFTC order for spoofing against one of your own principals. We don’t know about you, but there seem to be a few coincidences piling up here.
Now for one little speculative coincidence. Who do you speculate might have benefited from what appears to be an attempt to pump the price in project wallets using project funds? Spolier alert, probably someone with a large bag of tokens, possibly even someone who uses phrases like “My locked are locked”…….
Basis Markets Investigation Series
Part 2 — Digital Property Inventory — what has been deleted???
Part 3 — Blockchain — NFT presale — how was 32,000 SOL split?
Part 4 — Blockchain — $BASIS IDO — how was $20.725M split?
Part 5 — Blockchain — What happened to the Basis bank account?
Part 6 — Blockchain — Seed Liquidity and “spoofing”
Part 7- Blockchain — Founder “locked” tokens
Part 8— Regulation — were NFT/tokens “investment contracts”?
Part 9— Regulation — was Basis Markets an “investment adviser”?
Part 10— Regulation — did Basis Markets break “number 1 rule?”
Part 11— Regulation — what did Lummis/Gillibrand change?
Part 12— Founders — TraderSkew
Part 13 — Founders — CryptoBoole
Part 14— Founders — Andreas / TedTalksMacro
Part 15 — Founders — DeltaOneDennis / Comguito
Part 16 — Conclusion
