An Inconvenient Truth: Decentralized, OTC Style Crypto Platforms are Used for Market Manipulation

Aug 17, 2018 · 4 min read

Some leading figures behind decentralized marketplaces and exchanges have touted the altruistic benefits of such platforms, emphasizing that market manipulation (e.g., pump and dump) are “not possible” on platforms like OTC styled Airswap, in contrast to centralized exchange trading. In the Interview, Airswap Founder Michael Oved, a former “Flash Boy” at Virtu, a front running operation, states: “So I think a lot of the manipulation they talk about is something like a “pump and dump,” so it’s where a lot of people come in and they buy something and they sell it to someone else-that’s actually not possible on Airswap.

This statement is simply false. OTC (over the counter or off exchange) trading is an instrumental tool for pump and dump. Don’t believe us? Ask the experts (i.e. those who actually manipulate and do the pumping and dumping):

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Screenshot of the 2018 exposed crypto pump and dump involving telegram, OTC and Haven Protocol tokens. Source:
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Screenshot of the 2018 exposed crypto pump and dump involving telegram, OTC and Haven Protocol tokens. Source:

These screenshots are from a 2018 exposed pump and dump scheme. Why would the scheme operators seek to use OTC to carry out their plan? To answer this, let’s briefly explore what crypto OTC trading is, in order of increasing maleficence.

  • OTC is often peer to peer. Nothing wrong with this per se. There may also be a third party broker who connects the buyer and seller and is compensated in some way (commission, fee, staking or promise of future deals). The parties negotiate deal terms, and Airswap is facilitating this with its Peer to Peer trading chat feature for investors who go through anti-money laundering (AML) and “Know Your Customer” (KYC) verification with Wyre.
  • The trade sizes are large. Huge, in fact. Market moving amounts. Small, retail style traders are typically not served in OTC. As a VentureBeats article reports: ‘“Generally, you would go trade through an OTC desk when you have a large block trade you want to do without moving the market too much or incurring too much slippage,” said Kevin Zhou, founder of cryptocurrency-focused hedge fund Galois Capital’
  • OTC is dark. It is private. No one knows who traded, at what quantity, and at what prices other than the buyer, seller and broker (if there even is a broker). The parties privately negotiate deal terms. The transaction information is not shared with the public market as a whole. Remember this bullet. Its important and interacts with the prior bullet. Blockchain shed some light on this shadowy market; however, as block explorers can show amounts and public keys. As Guarav Das of Brave New Coin writes “Accurately quantifying OTC trading is nigh on impossible because the details aren’t made public.

One must admit that an OTC enabled pump and dump benefits from public orderbook exchanges, because when desired, the manipulator or trader can then cause desired price changes with massive buy or sell orders, depending on the desired price direction.

In a Bloomberg article, one respected blockchain personality said “I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.” The article author Olga Kharif notes, “ What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market.”

Whether people use Telegram or an Airswap style chatbox, manipulation will continue in the shadows by a select few, but perhaps Airswap can aid in limiting this trend, rather than making it worse. They will have to balance desire for doing the right thing with the expedient thing for their business and token price.

Will Airswap monitor conversations?

Will they give the government regulators access to the chats?

Is this too centralized?

But should it be to protect the markets from manipulation?

Is Mr. Oved wrong or did he misspeak for saying manipulation is not possible on platforms like Airswap?

Should we expect more or less from companies led by millennial?

People should demand accountability of these “leading” companies.

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Michael Oved, Founder/CEO of Airswap and a former “Flash Boy” trader at Virtu

TLDR: At the end of the day, tools like Airswap facilitate pump and dumps and other shadowy deals. They inhibit price discovery. In an age of blockchain and its virtue of transparency, should we not be applauding price discovery, information sharing and perfectly competitive markets. OTC dark pools seek to cast a massive shadow on smaller investors, making otherwise almost perfect markets imperfect.

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