Foresight Interview with DWF Labs Founder: Innovators Forge Ahead, Leaving the ‘Old Hat’ Market Makers Behind

Interview: Kean, Foresight News

Interviewee: Andrei Grachev, DWF Labs

Compiled & Translated by: Peng SUN, Foresight News

Andrei Grachev involuntarily revealed a sense of joy and excitement as he discussed non-American markets, saying, 'I have 5 Chinese tattoos on my body.'

As a Russian, Andrei Grachev embodies the wild spirit of a fighting nation. However, he steadfastly chose Asia for his crypto investments. In the world of cryptocurrency, Asia has long been renowned for its trading, speculation, and hype. Andrei Grachev’s story is a part of this narrative; he began with trading, delved into market-making, high-frequency trading, and investments, believing that the markets of Asia and the Middle East will lead the new wave.

If we look back at 2022, both DWF Labs and Andrei Grachev undoubtedly emerged as controversial focal points. With investments reaching tens of millions of dollars monthly, questions arose about the source of funds. Were they manipulating the secondary market? Were unconventional market-making methods being edged out by entities like Wintermute? Waves of controversies surfaced, yet Andrei Grachev remained unfazed. He believed he was merely challenging tradition, neither breaking the law nor doing anything wrong.

In Grachev’s perspective, DWF Labs is an all-encompassing solution that caters to all needs, rather than just providing a singular market-making service:

Today, DWF Labs is a large-scale high-frequency trading firm, market maker, VC , OTC platform, incubator, ecosystem builder, fundraiser, event brand, TVL provider, DeFi participant, advisor, listing agent, HR entity, public relations/marketing agency, KOL , and an RFQ (Request for Quote) platform, among others…

Grachev claimed that over the past 16 months, DWF Labs has provided these services to around 350 Web3 projects within the top 1000 in CoinMarketCap’s market value rankings. When the founder of Wintermute scoffed at associating with them, Grachev openly retorted, “We thrive on controversy and wear it as a badge of honor.”

To blend in with those ‘orthodox’ market makers who accept loans, do nothing but dump, or profit from call options is my shame. They only know how to envy. We dare to take risks, innovate, change the order of the crypto world, and raise the standards for market makers.

Since Crypto is breaking the traditional narrative order of nation-states, why can’t DWF Labs break the traditional narrative of crypto market makers? Since crypto is constantly restructuring and has not yet provided a new framework, why can’t DWF Labs reconstruct the past and construct its own narrative?

In this interview, Grachev revealed the fundamental structure of DWF Labs, its various operations, sources of funding, risk management methods, investment logic and style, plans for a bull market, the latest progress on acquiring FTX, and opinions on the global crypto market. Regardless of its operational model and controversies, objectively speaking, DWF Labs has provided considerable support to many projects even during bear markets.

I. The Journey of Innovative Market Makers

Andrei Grachev has been working in the logistics industry since August 2010, transitioning to trading in traditional markets in 2014, thus commencing his journey in trading. In 2016, Grachev appeared to make his first purchase of ETH, which resulted in substantial gains for him during the bullish market of 2017. His experiences, including founding a cryptocurrency trading company and holding positions such as Huobi Russia, facilitated his rapid growth.

Foresight News: How did you transition from the logistics industry to crypto, and are there any key turning points or interesting experiences you’d like to share?

Andrei Grachev: Since I was 18, I’ve been in the logistics industry for 8 years before transitioning into trading in traditional markets around 2014. Later, I pivoted to e-commerce, which afforded me more time to delve into financial markets and related knowledge. Interestingly, my experiences in logistics and e-commerce didn’t significantly influence my cryptocurrency trading but did impact my management skills and work style. In fact, since 2010, I’ve been working remotely with large distributed teams. Both industries have helped cultivate my ability to see the bigger picture.

In 2016, a friend living in London introduced me to Ethereum mining, marking my entry into the crypto world. The crypto boom of 2017, where prices surged from $7 to $350, was a significant turning point. Selling some ETH during that time kickstarted my crypto journey. I explored various avenues in crypto, managing funds for friends and family, providing consultancy, and eventually becoming the COO of Huobi Russia. Meeting the DWF team forged strong bonds, leading me to become one of their partners after two years of collaboration.

Huobi Russia was my most significant experience where I met partners from Digital Wave Finance (DWF), and we later became good friends. As the fastest-growing and largest-scale Huobi Cloud, we received two awards from Huobi Global, which helped me establish many relationships in China and Southeast Asia. Despite resigning as CEO in 2019, I continued working there as a partner until 2021, ultimately selling back the Huobi Russia business to Huobi and making a substantial profit. Before founding DWF Labs, we also created, engaging in proprietary high-frequency trading on secondary CEX platforms, where I learned a lot about product and technical details.

Foresight News: Why did you establish DWF Labs? How did your team come together, and where are the members located? How do your team communicate and coordinate the work?

Andrei Grachev: Before the establishment of DWF Labs in 2022, there was DWF Digital Wave Finance, formed in 2018 by a team of individuals, excluding myself. I supported Digital Wave Finance by facilitating exchange onboarding, negotiating favorable fees, and securing advantageous conditions. During this time, I crossed paths with my current partners, Zac, Eugene, and Hank, who provided invaluable assistance in navigating Asian markets.

As discussions unfolded about collaborating with Digital Wave Finance, I proposed launching a market-making venture to my Asian connections. This initiative laid the groundwork for the birth of DWF Labs. Our primary operations center in Asia, complemented by a presence in Switzerland, defines our global reach.

Remote work has been our norm for quite some time. We rely on standard communication tools like Telegram, Zoom, and Google Meetings to facilitate our seamless operations across continents.

Foresight News: What is the relationship between OTC, DWF Ventures, and market makers as indicated on your website, and how do they play their roles?

Andrei Grachev: We operate various departments and offer diverse products, such as our OTC service. Here, our focus is on facilitating seamless transactions for individuals or entities that meet our KYB (Know Your Business), KYC (Know Your Customer), and AML (Anti-Money Laundering) requirements. Handling settlements for their tokens is a straightforward process; essentially, we present the options to sell or retain tokens, simplifying the decision-making process.

We’ve streamlined this operation further by augmenting our team to source online prices from multiple liquidation engines, enhancing our service. For projects initially engaged in OTC, we aim to transition them towards other offerings, like market-making and core investments. Additionally, we’ve established DWF Ecosystems that fosters communication among diverse projects and entrepreneurs , enabling them to explore and engage in new ventures for enhanced deal-making opportunities.

These three distinct directions represent our focus areas. Market making operates independently as a technical trading unit, segregated from our sales team and sometimes even based in a different country. We also engage in incubating and nurturing projects. Currently, approximately 60 companies in the DWF Ventures portfolio have received our support at the angel and seed funding stages. On the other hand, our investments and OTC departments collaborate closely, intertwining their functions to optimize outcomes and ensure effective communication for successful transactions.

II. Where Does the Money Come From?

Perhaps the bull markets of 2017 and 2022 filled Grachev’s pockets, but where do their funds come from? How do they plan to keep their earnings in the pocket?

Foresight News: Over a considerable period, DWF Labs has been making quite a lot substantial investments. I’m curious about the source of DWF Labs’ funding and whether there has been any fundraising.

Andrei Grachev: We’ve never engaged in fundraising, and currently, we don’t have any plans to pursue it. DWF has been financially robust, especially during the bullish market phase from 2020 to 2022. We’ve leveraged these substantial funds alongside our consistently profitable operations. While I can’t share specific figures, I can assure you that we possess the financial capacity to easily invest tens of millions each month in startups.

Our primary objective isn’t just about investing funds to generate modest returns; rather, we’re inclined to invest substantial amounts, exercise patience, and witness significant returns.

Foresight News: How do you manage token holdings and implement risk control at DWF Labs?

Andrei Grachev: We distribute tokens across centralized exchanges, adhering to stringent risk protocols. Our stance on risk management is rather paranoid, but for good reason. While making money is one aspect, safeguarding those earnings is equally crucial. Hacks have been pervasive across exchanges, protocols, and even market makers. To avoid being part of such incidents, we diligently employ risk-reduction solutions.

A portion of our funds resides on centralized exchanges (CEXs) as per our risk strategy. Additionally, we utilize custodial services like Fireblocks, which, in our assessment, offers robust solutions. We also employ multi-signature wallets on-chain, leveraging them when necessary.

Regarding BTC, the majority remains in cold wallets, mainly because BTC doesn’t require frequent transfers to exchanges.

III. The ‘Old Hat’ Market Makers Won’t Survive

“DWF Labs has chosen a path of independence, brushing off skepticism as long as it remains compliant. ‘DWF Labs is an all-encompassing solution for all needs,’ this is how Andrei Grachev positions DWF Labs. In the past 16 months, they’ve provided these services to approximately 350 Web3 projects within the top 1000 in CoinMarketCap’s market value rankings. He aims to compete with the ‘iPhone,’ not the ‘Nokia.’ As Grachev mentioned, DWF Labs supports portfolio companies in the Korean market, a tricky task for many, but they manage it in a compliant manner. ‘Be creative, not biased.’

Currently, DWF Labs has invested in 470 projects, with 70% of them focusing on DeFi, decentralized derivatives, GameFi, and SocialFi, while the rest include some higher market share currencies and memecoins.

Foresight News: Throughout this year, your compound operational model of “investment + market making” has been a topic of public discussion. Traditional crypto market makers, including Wintermute, have criticized your investment approach, claiming that you are merely “trading” rather than “investing.” What is your current relationship with these traditional market makers, and is there any collaboration in your business?

Andrei Grachev: I don’t really see many avenues for collaboration with them. Perhaps the only way I could propose is hiring some of their talented individuals for DWF. But in the world of business, it’s akin to being in the media like you. Let’s say you’re a trailblazer in media, and a competitor starts complaining about your interview style, saying it’s not traditional. Would you pay much attention to that? I doubt it. You’d likely be pleased that you’re innovating and drawing more attention.

For us, the key focus is on maintaining legitimacy. As long as we’re operating within the bounds of what’s right and legal, if a certain approach proves effective, we’ll leverage it without worrying about what others say. It’s about making our strategies work and not being deterred by criticisms or complaints from competitors.

Foresight News: The secondary market also perceives you as conducting market manipulation, with data companies and media reporting on the flow of your on-chain funds. Your fund movements have become a directional indicator for institutions, retail investors, and market judgments. How do you view these perceptions?

Andrei Grachev: I’ve come across these kinds of discussions frequently. In terms of trading volume, we handle billions of US dollars daily. However, when compared to overall transactions, it’s relatively minimal, and importantly, we don’t trade against it. While media and people might speculate and comment, our actions do have an impact. When people observe our actions, they might react by buying or selling, but those are their decisions, not within our control.

We operate in crypto trading and investing, and it’s crucial to understand that our actions—sending or receiving coins to or from an exchange—are an integral part of our business. We don’t engage in trading that’s contingent on these reactions; our approach remains distinct.

Manipulating the market holds no appeal for us. With the industry moving towards more regulation and legitimacy, our focus lies in the long-term game rather than short-term gains. Ultimately, it’s up to individuals whether they choose to follow us or trade against us, but our ethos is rooted in playing a strategic, long-term game within the evolving market landscape.

Foresight News: I noticed your response to Coin98 Analytics on Twitter, stating that the 174 projects they compiled constitute 40% of DWF Labs’ entire investment portfolio, equating to 435 projects. Could you share the types of projects you typically invest in, and what strategies you employ for different projects?

Andrei Grachev: Our portfolio primarily revolves around long-term narratives, constituting about 70% of our investments. This includes our focus on DeFi, decentralized derivatives like perpetuals or options, and a substantial stake in emerging sectors like GameFi and SocialFi.

The remaining part of our portfolio is allocated to certain coins for specific reasons, such as a strong market share or a considerable following among people. Additionally, a small portion is reserved for short-term narratives, like certain meme coins. The allure of meme coins isn’t due to any groundbreaking technology but rather the culture they embody. They represent a cultural phenomenon, and having exposure to such trends can prove beneficial. When the right time arises, these meme coins could witness significant surges, and that’s why we maintain a presence in this cultural space.

Foresight News: How does the investment approach of DWF Ventures differ from your OTC trading and secondary market coin purchases? In addition, you’ve mentioned that investing through direct token purchases helps projects in “distress/downturn.” This implies that these projects are already relatively mature. Does this mean you don’t trust startup teams since seed rounds are typically based on ideas without a fully developed product?

Andrei Grachev: Our involvement extends to incubating and seeding projects. Presently, our portfolio boasts around 60 ventures that we’ve supported at their angel and seed stages. These projects haven’t yet entered the market or been listed, but we hold strong convictions that when the timing aligns and they make their debut on exchanges, a significant portion of them have the potential for success.

Certainly, we trust startups. When it comes to investing, there’s a notable difference between startup ventures and secondary markets. Secondary markets offer data insights, traction, and user or trader interest, allowing for risk assessment and potential hedging. However, with startups, it’s a different ball game. It’s less about trust and more about astute risk management, considering the market’s dynamics and long-term narratives like DeFi or GameFi etc… Assessing startups involves analyzing teams, products, and how they align with these broader narratives. Even with a promising team and product, success isn’t guaranteed. It’s a calculated game where you weigh the odds and allocate funds accordingly. For instance, a portfolio heavily weighted toward startups (say, 90%) could pose substantial risks, while a more balanced approach (5-10%) allows for calculated bets that, even if they don’t pan out, won’t jeopardize the entire portfolio. It’s a strategy where the potential gains outweigh the possible losses.

In our approach, trust in startups is inherent; otherwise, we wouldn’t collaborate with them. It’s about navigating the risks and optimizing our investment decisions based on calculated probabilities.

IV. Confidence in Bear Markets Values More Than Just Funds

Andrei Grachev stated that DWF Labs’ investment extends beyond mere financial contributions; they also provide further support to the invested projects through DWF Ventures and the technical team. For him, instilling confidence in the industry during bear markets is crucial.

Foresight News: How decisions made and operations conducted for your over-the-counter trading and secondary market coin purchases? and also,  Besides coin purchases, what other support do you provide to your investment projects or portfolios?

Andrei Grachev: Beyond funds, which I believe are somewhat minor as any individual with cash could invest, we focus on providing more than just financial backing. In the crypto and venture space, money is usually not the problem; good projects often find enough funding. Our distinctiveness lies in the value-added services we offer.

We’ve structured our approach to set ourselves apart. Our incubation department plays a pivotal role by assisting in go-to-market strategies, conducting market research, collaborating with KOLs (Key Opinion Leaders), media entities, and local players. Additionally, we extend support by facilitating solutions through our HR department, aiding portfolio companies in talent acquisition for their teams.

Moreover, we provide technical assistance through our in-house team of around 10 developers. While they’re currently under our umbrella, we’re planning to spin them off into a separate entity soon. They lend their expertise in consulting, computation, and other technical aspects for our projects.

Lastly, our support extends to crucial services like listings and market making. These comprehensive offerings set the tone for what we bring to the table beyond just financial investments.

Foresight News: In 2022, the crypto market experienced collapses from Three Arrows Capital, Celsius, Voyager, FTX, etc.. causing immeasurable harm to the crypto industry. With a chilling crypto winter, financial markets cooling down, and a global economic shift towards conservatism, DWF Labs has bucked the trend. For example, you were supporting Binance’s Industry Recovery Fund, the TON Foundation’s “Rescue Fund,” and even significantly accelerating overall investment activities. What considerations and decisions underlie this contrarian approach?

Andrei Grachev: Looking back at early days this year, when FTX just crashed, it was an opportune time to deploy funds. When everyone was selling, it was an ideal moment to buy, adhering to the golden rule of investment. In times of market fear, being aggressive often means having fewer competitors. The Binance Recovery Initiative post-crash was impactful, and our collaborations with them contributed positively to the industry. For us, it’s not solely about money; it’s about instilling confidence. During times of market uncertainty, it’s crucial for individuals or groups to step up and encourage continued development. We’ve made several investments that provided crucial support to projects and yielded fruitful returns for us.

Regarding the TON Foundation, it’s no secret that we made significant investments in TON. It was a long-term commitment with low capitalization, but we firmly believed in its potential, investing tens of millions. When TON launched its initiative, it was natural for us to provide our support. Our approach is rooted in supporting our partners across various realms, whether it’s backing a market maker or facilitating an OTC deal.

V. Plans for the Bull Market

Andrei mentioned that DWF Labs is highly adaptable, maintaining bearish investment logic during bear markets while also preparing for bull markets through additional support and investments. Simultaneously, due to a significant portion of their own funds being frozen in FTX, DWF Labs is also in the process of acquiring a local exchange of FTX.

Foresight News: In the current bear market, your approach of investing in distressed projects through over-the-counter trading has been effective. However, as the bull market comes, project financing will likely become more abundant. Your current investment strategy may face challenges in the next bull market. What plans and strategies do you have for the next bull market?

Andrei Grachev: First of all, our investment strategy isn’t solely focused on distressed projects. An example of this diversified approach is our substantial investment in Fetch .ai, which performing exceptionally well. It’s been a lucrative investment, and we remain committed to supporting them.

Our efforts have been directed not just towards injecting money into ventures but also in building an ecosystem. What we sell now isn’t just our funds but our comprehensive support, which has proven instrumental in closing more deals.

For context, in July last year, marking the 12-month milestone since DWF Labs commenced operations, I tweeted about hitting 250 projects in our portfolio within that time frame. Since then, our portfolio has expanded to around 470 projects. This showcases our ability to secure deals, not just during the distressed market phase when securing deals were easier, but also during the subsequent four months in a positive market environment. It’s a testament to our adaptability and capabilities to thrive in various market conditions. Currently, our efforts and achievements are surpassing what we accomplished half a year ago.

Foresight News: You mentioned considering acquiring FTX assets, and there has been a recent surge in speculation about acquiring FTX and relaunching FTX 2.0, with a significant increase in the FTT token price. Have you communicated with FTX, and are you actively pursuing this plan?

Andrei Grachev: We’re actively engaged in discussions with FTX liquidators through our legal team, focusing on our assets and the ongoing conversation seems to be progressing positively.

Regarding FTX 2.0, a local FTX exchange approached us, seeking our participation as a market maker. Considering we have a significant portion of our funds frozen on FTX, engaging in trading activities could facilitate the recovery of these funds. However, at this juncture, we lack a clear understanding of how the process would unfold.

Foresight News: One of our editors has written an article on the brief history of LocalBitcoins, once the world’s largest Bitcoin OTC platform, which operated for a decade and recently announced its cessation of operations. Its peak was influenced by factors such as bull markets, economics etc., Ultimately, LocalBitcoins failed as it complied with regulations, KYC etc. I would like to understand the OTC operation mechanism of DWF Labs, which regions you provide this service for, and how you handle regulations. And maybe introduce a bit about DWF Liquid Markets (OTC/RFQ platform) that you plan to launch?

Andrei Grachev: I haven’t delved deeply into the details yet, as we aim to make a proper announcement when the time is right. However, I can clarify one aspect—it’s not akin to platforms like localBitcoins. Rather, it’s more aligned with Binance P2P, albeit with a unique twist. We’ll be unveiling more specifics at the appropriate time.

Foresight News: You mentioned that DWF Labs has obtained a license from the Dubai Multi Commodities Centre (DMCC) and has become its financial ecosystem partner. What kind of business activities do you plan to undertake in Dubai in the future?

Andrei Grachev: We’ve recently applied for multiple licenses, expanding our operations into the Middle East. To ensure our business is fully licensed, we’re undergoing audits conducted by one of the top-four audit firms.

In line with our activities, just yesterday, DWF Labs and DMCC, along with Bybit and other partners, organized and hosted a hackathon at DMCC in Dubai. This event showcased our commitment to the region. In addition, we provide financial support and advisory services to DMCC based startups based in the UAE.

VI. All in the East, Embracing the Oriental Power

I have 5 Chinese tattoos on my body,” Andrei Grachev said proudly and excitedly. There’s an essence of the East about him, perhaps aligning with the characteristics of Eastern crypto, which makes him so dedicated and confident about the East in his trading pursuits.

Foresight News: You have three offices in Asia, including Singapore, South Korea, and Hong Kong, along with two others in the British Virgin Islands and Dubai. Asians make up a significant proportion of your team. It seems you have had close ties with the Chinese market early on. So How do you view the Asian market, especially given that the U.S. domestic market is still significant? Does your focus lean more towards non-U.S. markets?

Andrei Grachev: The Asian market stands out as a global leader in the crypto sphere, with key exchanges like Binance, OKX, and Bybit dominating the trading volume. While Coinbase and Bitfinex aren’t from Asia, Coinbase’s trading volume might not match up to some Asian exchanges like

The global financial landscape appears to be splitting into an East-West division concerning regulation and compliance. Straddling both compliance and risk-free trading isn’t feasible across the Western and Eastern markets. Hence, our approach leans toward being Eastern-centric, reflecting our strong presence in Asia, which has been a deliberate choice. Our team’s composition and our affinity for Asian culture are evident indicators of our focus on this region, including the Middle East and China, as our primary target markets. Since 2018, I’ve collaborated closely with Chinese counterparts, amplifying our commitment to this region.

The industry-wide narrative, including market makers and regular trading, has been shaped by a firewall between the U.S. and the rest of the world. Engaging in trading activities on platforms like Coinbase’s spot market might be restricted due to potential SEC implications, deterring market makers from such involvement.

Looking ahead, the anticipation for a Bitcoin ETF launch remains a focal point globally. While it may start with U.S. news about ETF approvals, the impetus and momentum for its success are expected to come from Asian and Middle Eastern markets, further propelling its adoption and growth.

Foresight News: CZ has to resign from Binance, any thoughts on how it would impact the crypto market?

Andrei Grachev: It’s bad news as Binance undoubtedly stands as a leader in the industry. It’s a huge win for the U.S. regulators gaining access to Binance’s data, they now have insights of user activities and everything. This scenario could potentially drive users towards DeFi platforms, as they seek more decentralized and less regulated alternatives. Exchanges not involved with the U.S. might see a benefit from this shift in user behavior.

Despite this, I don’t anticipate this to critically impact Binance’s business. Binance has solidified itself as a major player in the crypto space, and while regulatory scrutiny could drive some users elsewhere, it’s unlikely to significantly dent Binance’s market dominance.