Weekly Market Highlights Review: MOVE Crash and Underlying Manipulation in Web3, AI and PayFi Enter Acceleration Phase

This week, the cryptocurrency market experienced a significant surge, with Ethereum ecosystem and AI-related assets leading the rise of over 20%. At the same time, a new wave of turmoil has emerged in the market, as a certain project faced a price collapse due to issues related to market-making agreements, prompting reflections on industry ethics and regulation. Meanwhile, the AI and payment sectors are accelerating their development, with a certain public chain promoting new standards and mainstream exchanges laying out their payment ecosystems. Coupled with policy trends, this indicates that the cryptocurrency market is facing a new round of reshuffling and opportunities.

1. A project event - Market-making agreement leads to collapse

This week, a certain project was suspended from trading by the exchange and its airdrop was postponed, once again attracting attention. This project had previously raised over $40 million and was included in an investment portfolio supported by a certain political figure.

The manipulation suspicion is at the core of the incident, involving a market-making agreement between a fund and the project party, which is accused of incentivizing price manipulation. According to reports, the agreement places about half of the circulating tokens under the control of market makers, incentivizing them to inflate the token valuation to $5 billion before selling for profit, resulting in the sale of 66 million tokens ( worth $38 million ) the day after the listing, causing a price crash.

After the incident, the project party announced that it would buy back tokens worth 38 million USDT, but a few days later, it deposited a large number of tokens into the exchange.

Role of Market Makers and Contract Disputes:

• The market maker is a company with almost no digital footprint, yet it sells a large amount of tokens shortly after going live. The disclosed contracts show that it plays multiple roles and is suspected of self-trading.
• The contract includes an incentive mechanism: if the token valuation exceeds $5 billion, the market maker can liquidate and share the profits with the foundation. Experts criticize that this encourages artificially inflating prices for subsequent sell-offs.
• The project's legal advisor described the agreement as "the worst", yet the founder still pushed for the signing of a revised version, retaining the core incentive structure.
• The market maker claims to provide $60 million in collateral assets, but its domain name was registered only on the day of the contract signing, indicating suspicious operations.

Previously, it was disclosed that a certain market maker established a "brokerage pipeline for listing on exchanges," obtaining free tokens through project packaging, then creating a selling window under the guise of market making, forming a complete process from financing to exit, with retail investors becoming the final buyers.

Even more shocking is that the key arrangements have already been implemented through informal channels in advance. Typically, cryptocurrencies should have a lock-up period, but this time, the market makers sold off the tokens immediately after acquiring them, becoming the focus of suspicion regarding insider trading.

After the incident broke out, all parties blamed each other. Currently, the project party has entrusted an organization to investigate, and several senior executives are under review, severely challenging the project's reputation and governance.

This matter has revealed in detail the issues of inadequate regulation of the market-making mechanism and the lack of transparency in the legal framework for the first time. Theoretically, market makers should provide liquidity for new tokens and maintain price stability. However, in the absence of regulation, it may be abused as a tool for market manipulation, harming the rights and interests of investors.

2. Development of AI and Payment Track

A certain public chain's official tweet introduced a new protocol and AI plan, aiming to provide developers with a standardized and secure AI integration framework, promote AI innovation within the Web3 ecosystem, and address blockchain data access and security challenges. This public chain will support AI projects through hackathons, incubators, and other methods.

2024 is a breakthrough year for AI company financing, with nearly one-third of global venture capital flowing into AI-related fields. Data shows that AI company financing has surpassed $100 billion, with year-on-year growth of over 80%, exceeding every year in the past decade. Late-stage financing in the fourth quarter reached $61 billion, with a quarter-on-quarter growth of over 70%. AI startups performed better than non-AI companies in early funding rounds.

The US dominates AI financing, with AI financing accounting for 46.4% of US VC deal value in 2024, totaling approximately $97 billion. It is reported that a certain government plans to relax export restrictions on AI chips. The number of Web3 AI projects is expected to experience explosive growth, bringing new opportunities to the market.

In the payment sector, mainstream exchanges are making moves. One exchange has launched a payment system that supports stablecoins, while another exchange has partnered with a country to introduce a national-level crypto travel payment system. This confirms the potential of the payment sector, especially in the context of stablecoin regulatory compliance.

3. Policy Regulatory Trends

1. A certain state has passed the Bitcoin Strategic Reserve Act, authorizing state financial officials to purchase Bitcoin, allowing up to 5% of funds ( to invest approximately $280 million to $770 million ) in precious metals and cryptocurrencies with a market capitalization exceeding $500 billion. This marks the entry of the United States into the field of compliant cryptocurrency investments, signaling that more states may follow suit. The bill will take effect in 60 days.

2. The U.S. Senate voted down the Stablecoin Innovation and Security Act with a vote of 48 to 49. The bill was originally aimed at establishing the first regulatory framework for stablecoins in the U.S., defining payment stablecoins and requiring 1:1 reserve backing. Regulatory details include differentiating between state and federal regulation, requiring regular disclosures, etc. The Democrats' request to include provisions that would prohibit government officials from holding crypto assets was not adopted. Senate Republicans stated they would push for a vote again in the near future.

The failure of the bill has resulted in the U.S. stablecoin market maintaining existing state-level regulations, lacking a unified federal framework, which may limit market growth. If passed, mainstream public chains may benefit, as they are the primary platforms for issuing stablecoins. The bill could increase the use of stablecoins, driving up related demand.