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

This week, the cryptocurrency market has seen a significant rise, led by the Ethereum ecosystem and the AI sector, with an increase of over 20%. At the same time, the market has also experienced some turmoil. A certain project was accused of price manipulation due to its market-making agreement, leading to a collapse in coin prices and prompting reflection on industry ethics and regulation. Meanwhile, the AI and payment finance sectors are accelerating their development, with a certain public chain promoting new standards, mainstream exchanges laying out payment ecosystems, and along with policy trends, indicating that the cryptocurrency market is facing a new round of reshuffling and opportunities.

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

This week, a certain project was suspended from trading by the exchange and the airdrop was postponed, once again becoming a focal point of public opinion. This project previously raised over $40 million and was included in a cryptocurrency portfolio supported by a certain political figure.

The manipulation suspicion is at the core of the incident, involving an agreement between market makers and project parties that is accused of incentivizing price manipulation. According to media reports, the project party's contract with the market maker will hand over about half of the circulating tokens to the market maker for control, incentivizing them to drive up the token valuation to $5 billion before selling for profit, leading to the sale of 66 million tokens ( worth $38 million ) on the day after listing, causing a sharp drop in the token price.

Interestingly, after the sell-off event, the project team announced that they would repurchase tokens worth 38 million USDT over the next three months in an attempt to stabilize community sentiment, but just a few days later, they deposited 17.15 million tokens to the exchange.

The Role of Market Makers and Contract Disputes:

• The market maker is a company with almost no digital footprint, yet it dumped a large amount of tokens after the project went live. The contract shows that the market maker plays multiple roles in the transactions, suspected of self-trading.
• The contract terms include an incentive mechanism: if the fully diluted valuation of the tokens exceeds $5 billion, market makers can liquidate the tokens and share the profits with the project party on a 50:50 basis. Crypto experts criticize this clause as "encouraging artificial price inflation followed by sell-off", posing a potential manipulation risk.
• The project’s legal advisor initially referred to the agreement as "the worst agreement," and the board also refused to sign. However, the co-founders pushed for the signing of a revised agreement, removing some contentious clauses while retaining the core incentive structure.
• The market maker claims to be a subsidiary of a certain Chinese market maker and has proposed to provide $60 million in collateral assets out of its own pocket, which has somewhat impressed the project party. It is worth noting that the market maker's domain name was registered on the same day the agreement was signed, indicating the temporary and suspicious nature of the operation.

Even more shocking is that the market makers signed a similar agreement with a certain party before the project went live, bypassing the project party's review. This indicates that key arrangements had already been made through informal channels in advance, laying the groundwork for subsequent explosions.

Typically, cryptocurrencies should have a lock-up period to prevent early selling; however, in this incident, market makers obtained tokens through the agreement and immediately sold them, becoming the core issue of external doubts about insider trading.

After the incident broke out, the project party and the market makers, as well as the founders, blamed each other for the responsibility. The project party claimed to have been misled by the market makers, while the market makers insisted that the agreement was permitted by the project party. Currently, the project has commissioned a third-party auditing agency to investigate the market irregularities, and several senior executives and legal advisors are under review. The project's credibility and governance are facing serious challenges, and the token price has performed poorly.

This incident has exposed in detail the lack of regulation in market-making mechanisms and the obscurity of the legal framework, but this may only be the tip of the iceberg. Theoretically, market makers provide liquidity for new tokens, maintaining price stability and market depth. However, in practice, if there is a lack of regulatory or transparent mechanisms, market makers may be abused as tools to manipulate the market and secretly transfer large amounts of tokens, harming the rights of ordinary investors and undermining market fairness.

2. AI and Payment Finance

This week, an official public chain launched a new protocol and AI support program, aiming to provide developers with a standardized and secure AI integration framework, promote AI innovation in the Web3 ecosystem, address blockchain data access and security challenges, and contribute to building a "proxy" future.

The public chain will support AI through three aspects: hackathons, AI agent solutions, and incubator programs. This news has received widespread attention due to being shared by a well-known figure.

Since the inception of GPT, AI has been a hot topic. In the Web3 world, various AI-related projects or those riding the AI wave have emerged, reflecting the significant role of AI in mainstream narratives.

2024 is a breakthrough year for AI company financing. Nearly one-third of global venture capital has flowed into AI-related fields, making it the leading financing sector. Data shows that financing for AI-related companies has exceeded $100 billion, with a year-on-year growth of over 80%, surpassing the financing amounts of each of the past ten years.

In the later stage of financing in the fourth quarter of 2024, it reached 61 billion USD, with a quarter-on-quarter increase of over 70% and a year-on-year growth of about 70%. The biggest change is the increase in financing at the 1 billion USD level, involving multiple fields such as AI, applied AI, energy, semiconductors, banking, security, and aerospace.

In addition, data from May 2024 shows that AI startups received higher VC funding in seed, Series A, and Series B rounds compared to non-AI startups.

According to reports, a certain government plans to lift some export restrictions on AI chips as part of a broader effort to revise semiconductor trade restrictions. The new policy categorizes countries into three types to regulate the exports of major chip companies.

The United States dominates AI financing, accounting for 46.4% of the value of VC transactions in the US in 2024, totaling approximately $97 billion, with nearly 4,000 transactions. This year, the number of Web3 AI projects is expected to experience explosive growth, bringing new wealth opportunities and value creation space to the market.

Currently, noteworthy AI projects that have not yet issued tokens include 0G, which raised $105 million, and Sentient, which raised $85 million.

In the payment finance sector, a certain exchange has launched a product focused on stablecoin payments, initially supporting USDT and USDC, with plans to integrate more stablecoins in the future. Another exchange has partnered with a certain country to launch the world's first national-level cryptocurrency travel payment system. The strategies of leading exchanges confirm the potential of the payment finance sector, especially in the context of regulatory compliance for stablecoins.

The previously recommended payment financial project deposit activity was very popular, and its team stated that they would issue tokens in Q2. The project has raised a total of $46.3 million in two rounds of financing from several well-known institutional investors.

Three, Policy Regulation

1. A certain state passed a strategic Bitcoin reserve bill, authorizing state treasury officials to purchase Bitcoin

• On May 7, the state became the first in the United States to pass a strategic Bitcoin reserve law, authorizing state treasurers to purchase Bitcoin directly or through ETP.
• The bill allows state finances to invest up to 5% of funds (, approximately $280 million to $770 million ), in precious metals and cryptocurrencies with a market value of over $500 billion, currently only Bitcoin qualifies.
• This move marks the United States' entry into the compliant investment space for cryptocurrencies, signaling that more states may follow suit. The bill requires the implementation of American regulatory custody to ensure safety and transparency, and will take effect in 60 days.
• It is worth noting that the Bretton Woods system also originated in this state. In 1944, representatives from 44 allied countries held a meeting here to establish the IMF and the World Bank, setting up a fixed exchange rate system based on the dollar and gold, which lasted until its collapse in 1971.

2. The U.S. Senate rejected the Stablecoin Innovation and Security Act

• On May 9, the U.S. Senate voted 48 to 49 against the motion to advance the bill, with Democrats collectively voting no.
• The bill aims to create a clear federal regulatory framework for stablecoins in the United States, defining payment stablecoins as digital assets pegged to a fixed currency value and requiring 1:1 reserve backing.
• The bill stipulates that issuers with a market value of less than $10 billion are regulated by the state, while those with more than $10 billion are regulated by the federal government. It requires monthly liquidity reports and reserve disclosures to ensure market stability.
• The Democratic Party demands the inclusion of provisions to prohibit government officials from holding cryptocurrency assets, but this was not adopted. Republicans claim they will push for a vote again in the near future.
• The failure of the bill has resulted in the U.S. stablecoin market maintaining the existing state-level regulations, lacking a unified federal framework, which may limit market growth and weaken the U.S.'s competitiveness in the global digital finance arena.
• If passed, ETH may benefit. Ethereum is the primary issuance platform for USDC, with about 65.6% of the USDC supply on Ethereum. The bill could increase the use of stablecoins, driving up the demand for ETH, especially in the DeFi and payment sectors.