Behind the collapse of GPS and SHELL: a complete operation chain of a cryptocurrency harvester

Original author: Fairy, ChainCatcher

Original editor: TB, ChainCatcher

Liquidity is the lifeline for maintaining price stability, and market makers are the guardians of this lifeline. However, when the guardians become predators, what kind of chaos will the market fall into?

20 minutes after GPS was listed on the exchange, it fell below the opening price, and the price plummeted 74% from the high of $0.15. SHELL fell from $0.7 to $0.26. GPS and SHELL tokens have almost replica price charts, as if they were controlled by the same invisible hand.

With Binances investigation and the continuous revelations from community users, this incident quickly became everyones weekend topic. A hidden chain of interests gradually surfaced, and names such as We b 3 Port, Whisper, and May Liu were pushed to the forefront. The dark side behind the collapse was more shocking than imagined…

GPS, SHELL coin price chart

Market makers’ unilateral selling caused the price of coins to collapse

According to Binance’s announcement, the recent GPS price anomaly was directly caused by a market maker. The market maker only sold within 21 hours and did not fulfill its purchase obligations at all. It sold a large number of 70 million GPS tokens and made a profit of about $5 million. This selling behavior caused the price of the coin to plummet and the market liquidity was almost exhausted.

Subsequently, Binance investigated and found that both crypto projects had entrusted the same market maker to manage the liquidity of their tokens.

Binance then removed the market maker from its platform and prohibited it from continuing to engage in market making activities on the platform. At the same time, Binance confiscated the profits obtained by the market maker through illegal operations and planned to use these funds to compensate the damaged users of the GPS and SHELL projects. The specific compensation plan will be further announced by the project party.

The mastermind behind the scenes emerges: the complete chain of market manipulation

As the incident unfolded, the community quickly dug deeper and uncovered the true identity of the manipulator behind the incident. This incident not only exposed a market maker that manipulated the market, but also implicated an arbitrage chain that has been active in the cryptocurrency circle for a long time.

Crypto KOL @_FORAB revealed that the passive market maker for GPS and SHELL is GSR, while the active market maker is the Shanghai team We b 3 Port.

Further investigation revealed that We b 3 Port allocated tokens to its associated market maker Whisper, which obtained internal permission under We b 3 ports Binance account and executed continuous selling operations, which eventually led to the market crash. Many industry insiders confirmed that We b 3 Port and Whisper belonged to the same team, forming a complete arbitrage chain from token acquisition to cashing out.

May Liu and the “Arbitrage Assembly Line”

We b 3 Port partner May Lius long-term business operation model in the cryptocurrency circle has surfaced – from Spark Digital Capital to We b 3 Port, and then to Whisper, she has created an arbitrage pipeline specifically for project parties and exchanges.

• Spark Digital Capital Era (VC in disguise):
  May Liu was active in the cryptocurrency circle under the name of a VC institution, but she was actually mainly engaged in market outsourcing and FA (financial advisory) business. She obtained free tokens by packaging projects, and then Spark Digital Capital lobbied other VC institutions to invest, making these VCs who actually invested become takers, while she herself made arbitrage without any capital.

• Web 3 Port Incubator (free token exchange service):
  After 2021 and 2022, as VC competition intensifies, project owners are increasingly unwilling to provide tokens for free, and this arbitrage model is challenged. Therefore, May Liu founded the Web 3 Port incubator, which specializes in serving early-stage projects, providing packaging, guidance, and docking with VC resources, etc., in exchange for 1%-3% of the free token share.

• Whisper Market Maker (Cash Out):
  Free tokens alone are not enough to complete arbitrage, so We b 3 Port also set up Whisper market makers, which ostensibly provide liquidity for the project, but in fact provide a monetization channel for their own free tokens. Whisper can sell tokens on a large scale on exchanges such as Binance through internal authorization, cash out, and retail investors become long-term cash machines.

@_FORAB said: “The so-called one-year quick pass through Binance, to some extent, they did it, and they did it for a long time.”

Controversy arose, who should be held responsible for this junk market?

The market maker is not tenable

@yuyue_chris said: “The project party is equivalent to a “money printing machine”, while the market maker is responsible for helping the project party to cash out the tokens and split the accounts according to the agreed ratio. With this kind of interest-binding relationship, the possibility of the market maker unilaterally violating the wishes of the project party and arbitrarily shipping large quantities of tokens is very small.”

@silverfang 88 said: “I think the decision to dump the market is most likely made by the project + market makers together. In the case of a sluggish market, market makers may suggest that the project party sell as soon as possible and not to be biased, because Binances new coins are all waterfalls, and the project party agrees with this and finally reaches a consensus, which jointly promotes the continuous selling in the market.

On the other hand, the project itself failed to attract enough buying orders, and the market depth was insufficient. It could neither withstand the selling pressure nor expand the order book, resulting in sell orders always dominating and prices continuing to fall.

The Great Game talks about how the market makers of the New York Stock Exchange used to take advantage of the information asymmetry to manipulate the market and profit from it.

@0x JamesXXX said: “There is another problem that has been overlooked. According to the tokenomics disclosed by the project, the tokens of investors/incubators are still far from being unlocked. But why does this institution have so many unlocked tokens to sell? Is the project deceiving investors? Or is it using other unlocked tokens, such as airdrops, to give these tokens?”

All parties are pursuing profit and doing evil, the entire interest chain needs to be reflected upon

@forgivenever said: “The market is in its current predicament because the entire industry’s interest chain is full of evildoers who pretend to be ignorant.

Placing blame on individual scapegoats will not help solve the problem. What really needs to be reflected on is how exchanges, VCs, project owners, KOLs, market makers and other links have jointly led to the situation where retail investors are repeatedly harvested.”

There are also many voices in the market regarding Binance’s handling of this incident:

@armonio_liang said: “If Binance’s move is intended to reshape industry rules and promote the improvement of the exchange regulatory system, I support it. Looking back at the development of Wall Street, many regulatory systems are derived from industry self-discipline to achieve a healthier market environment.

However, if this action is just a campaign-style cleanup aimed at redistributing the benefits between institutions and ordinary investors, then the practice of eliminating market makers is more arbitrary than traditional financial markets and is difficult to convince people.

Supporters: Binance purifies the market environment

“Like Binance. If there is no cost to do evil, the originally neutral will gradually lean towards evil.”

“Binance’s actions to protect user interests and crack down on illegal activities are very powerful. I hope other exchanges can follow suit and jointly maintain market order.”

“Binance embodies the importance of community and the pursuit of fairness in the industry.”

Opposition: Interfering with free market competition

“Although this is a just approach, it is not decentralized.”

“Is Binance’s “iron-fisted” rectification this time out of the desire to protect the interests of retail investors, or is it intended to further strengthen its control over the market? After all, the delicate relationship between exchanges and market makers is well known in the industry, and Binance itself may not be able to stay out of this system.”

The turmoil caused by the GoPlus and MyShell incidents has exposed the deep-seated conflicts of interest and lack of supervision in the crypto industry. Blaming individual market makers for the market chaos is too simplistic and ignores the roles of exchanges, VCs, project owners, KOLs and other parties in the profit chain.

So, who is responsible for this junk market?

The future may just be an endless great game…

This article is sourced from the internet: Behind the collapse of GPS and SHELL: a complete operation chain of a cryptocurrency harvester

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