Arthur Cheong, the founder of DeFiance Capital, has issued a stark warning about the growing trend of cryptocurrency price manipulation, highlighting the risks this poses to investor confidence. His comments come in the wake of significant crashes in the prices of tokens from both the Mantra DAO and Story Protocol.
In a post on X (formerly Twitter) on April 14, Cheong expressed concerns that market makers and project teams are increasingly collaborating behind the scenes to artificially prop up token prices, leading to a situation where it’s unclear whether price movements are the result of organic market forces or deliberate manipulation. This, Cheong argues, undermines trust and creates a “lemon’s market,” where insiders benefit while retail investors bear the brunt of the risk.
Cheong pointed out that centralized exchanges (CEXs) have largely turned a blind eye to the issue, enabling such manipulation to flourish unchecked. He also noted that recent token generation events (TGEs) have largely underperformed, with many tokens seeing their prices plummet by 70-90% shortly after listing.
Mantra DAO and Story Protocol Crashes: A Case Study in Manipulation
Cheong’s warnings come in the aftermath of the dramatic crash of the Mantra (OM) token, which lost 90% of its value in less than 24 hours, erasing over $5 billion from its market capitalization. According to independent analysts, millions of OM tokens were moved to the OKX exchange just before the crash, leading to suspicions of insider selling. Mantra’s management has denied these claims, attributing the collapse to forced liquidations on centralized exchanges.
The turmoil didn’t stop with Mantra. As the dust settled on the OM crash, Story Protocol’s (STORY) token also experienced a sharp drop, falling 25% in just one hour. Trading volume during this crash was predominantly on Binance and OKX, both of which were tied to the Mantra token debacle. While Binance attributed the crash to forced liquidations, OKX pointed to changes in tokenomics and suspicious deposits to the exchange, fueling further speculation about possible manipulation.
The Extending Reach of Manipulation: A Threat to DeFi
The issue of price manipulation is not limited to centralized exchanges. Cheong’s warning also touches on the vulnerabilities in decentralized markets, where manipulation has been observed as well. In a notable example, a trader on Hyperliquid opened a $5 million short position on the JELLY token, only to later pump the token’s price, triggering a self-liquidation that caused a significant loss for the platform. This incident is seen as a clear example of how the design flaws in DeFi platforms can be exploited for profit, even without any technical glitches.
Dr. Jan Philipp Fritsche from Oak Security described this incident as a “textbook case of unpriced vega risk,” highlighting how the complex mechanics of DeFi can still be exploited by malicious actors.
Conclusion: A Call for Industry Reform
Cheong’s warning underscores the pressing need for reforms in the cryptocurrency industry. Without addressing these structural flaws—such as the lack of regulation on price manipulation and vulnerabilities in decentralized platforms—the broader crypto market could remain “uninvestable,” as Cheong describes it. As the market grows, the risks associated with price manipulation are becoming more apparent, and investors may need to be increasingly cautious about where they allocate their capital.
In conclusion, as the crypto industry continues to evolve, regulators, exchanges, and market participants will need to work together to mitigate the risks of price manipulation and restore investor confidence.
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