Crypto market veteran Matt Jobbé-Duval from Coinwash dissects the dark arts of "active market making," revealing the toxic financial structures that cause certain tokens to spectacularly crash by 99% overnight. This isn't just market volatility; it's a manufactured catastrophe sold to unsuspecting founders as a feature.
The Anatomy of a Crypto Crash
- "How can it go down 90% over a few hours if nothing has happened? You know, your founder wasn't put in jail or no big corporate news has happened... This really feels like there was a deal somewhere that triggers this kind of cascade."
The podcast highlights charts like Polyhedra (ZKJ), Mantra, and Solair, which experienced sudden, near-total collapses. These events aren't the result of normal market-making or bad news. They are the predictable outcome of a manipulative structure designed to look like success until the moment it implodes, shaking investor confidence to its core.
"Active Market Making": A Euphemism for Manipulation
- "It's called active market making... it's really about helping your price go in a direction that makes sense for you, the client. I'm like, 'oh, what?' Like, that sounds very, very manipulative."
- "Active market makers" approach founders with a tantalizing offer: they can treat a low token price like an engineering bug and "fix it," promising to send the price wherever the founder wants.
- The strategy is simple: use a large pool of cash to buy the token on the open market, creating artificial demand. This works best with a very low true circulating supply, a figure that can be misrepresented on data sites like CoinGecko, which do not verify these numbers.
The House of Cards: Locked Tokens and Perpetual Futures
- "The first liquid fund starts to sell perps... everybody who bought the locked tokens piles onto the short perp, short perp, short perp, pushing the price of the perp lower until people are done hedging. And by that time, of course, the price is decimated."
- The Setup: To get the cash for the pump, projects sell large amounts of locked tokens (undeliverable for months) to hedge funds at extreme discounts—sometimes up to 80%. A project might have to sell five tokens in the future to get enough cash to buy one token today.
- The Trigger: The pump eventually runs out of "rocket fuel." The hedge funds who bought the locked tokens see the momentum fading and rush to lock in their profits. Since their tokens are locked, they short the perpetual futures (perps) market instead.
- The Death Spiral: This first short creates a domino effect. Other funds pile on, crashing the perp price and its funding rate. This panic bleeds into the spot market, causing the price to collapse long before the locked tokens are ever released.
Key Takeaways:
- This toxic "active market making" is a ticking time bomb, not a sustainable growth strategy. The mechanics create a fragile illusion of success that is guaranteed to shatter.
- The Playbook is a Trap. So-called "active market making" is a destructive financing loop. Projects trade their future for a brief, artificial price pump fueled by selling locked tokens at catastrophic discounts.
- Perps Are the Canary in the Coal Mine. A sudden, plummeting perpetual futures funding rate is a massive red flag. It often signals that insiders are rushing to hedge their positions before an imminent and devastating spot price collapse.
- Your Chart Is Your Reputation. Once a token's chart is destroyed by one of these schemes, it becomes incredibly difficult to be taken seriously by the community, investors, or builders, leaving a permanent stain on the project's credibility.
For further insights, watch the full podcast: Link
This episode uncovers the toxic financial engineering behind sudden 99% token crashes, revealing how "active market making" deals systematically destroy investor confidence and project reputation.
The Mystery of Sudden Token Crashes
- The host initiates the discussion by questioning why certain tokens, despite having standard market-making agreements, exhibit extremely volatile and destructive chart patterns.
- Key Examples: The host points to the charts of Polyhedra (ZKJ), Mantra, and Solair (a Solana ecosystem token) as prime examples. These tokens experienced rapid, multi-fold price increases followed by catastrophic overnight collapses of 99% or more.
- The Core Problem: This volatility severely undermines investor confidence. The central question is what differentiates these deals from more stable, conventional market-making activities that result in more organic price action.
"Active Market Making": A Euphemism for Price Manipulation
- Matt Jobbé-Duval, drawing on his extensive experience, immediately distinguishes between legitimate liquidity provision and what he identifies as likely price manipulation. He explains that these dramatic crashes are not the result of normal market forces but are symptomatic of a specific, high-risk strategy.
- Introducing the Term: Matt identifies the strategy as "active market making," a term he notes was popularized by firms like DWF Labs. He expresses his initial skepticism as a veteran trader, as the term implies a deliberate effort to steer price rather than facilitate a fair market. "Active market sounds pretty good... Active is good. Right. Active actually the first time I heard the term... I'm like, what exactly is active market maker?"
- The Red Flag: He clarifies that when a token's price collapses by 90% in a few hours without any fundamental negative news (like a hack or regulatory action), it strongly suggests a pre-arranged deal has unraveled.
The Playbook: Engineering a Price Pump with Locked Tokens
- Matt details the mechanics of the "active market making" structure, which is pitched to project founders as a solution to engineer a higher token price.
- The Foundation: The strategy requires two key elements: a low true circulating supply and a significant amount of cash to execute buy orders. Matt notes that circulating supply figures on platforms like CoinGecko and CoinMarketCap are often self-reported by projects with no verification, making it easy to misrepresent the real float.
- Generating Cash: To fund the pump, projects sell large amounts of locked tokens—tokens that cannot be traded by the buyer for a set period (e.g., 6-9 months). These are sold at extreme discounts, which Matt states have recently reached 70-80%.
- Strategic Implication: This creates a dangerous imbalance. To raise $1 million in cash, a project might have to sell $5 million worth of future, locked tokens. This builds a massive, deferred sell-pressure that looms over the market.
The "Escape Velocity" Fallacy and the Inevitable Collapse
- The strategy is sold with a "fake it 'til you make it" narrative, analogized by Matt as trying to launch a rocket into orbit. The goal is to use the engineered price momentum to attract genuine community and business development, hoping the project achieves "escape velocity" before the locked tokens become liquid.
- The Unraveling Begins: The collapse is triggered not by the token unlocks, but much earlier. The buyers of the discounted locked tokens—typically liquid hedge funds—monitor the price action. When the upward momentum stalls as the cash for pumping runs out, they move to protect their gains.
- The Hedge Cascade: Unable to sell their locked tokens, these funds begin shorting perpetual futures (perps) to hedge their positions. Perpetual futures are derivative contracts that track a token's price without an expiration date, allowing traders to speculate on or hedge its future value.
- From Perps to Spot: The first fund's short-selling pushes the perp price down, which panics other funds holding locked tokens, who then also rush to short the perp. This creates a cascading sell-off in the derivatives market, and the weakness quickly “percolates into the spot weakness,” causing the token's price to crash long before any tokens are actually unlocked.
Conclusion
- The episode reveals "active market making" as a toxic structure that engineers artificial pumps via discounted locked-token sales. For investors, this is a critical red flag. Monitor perpetual futures funding rates on these tokens, as a sharp drop is a primary indicator of an imminent, hedge-driven price collapse.
