Market maker Jump Trading was accused of manipulating the rate of the gaming token DIO

What’s new? Game development studio FractureLabs has filed a lawsuit in Chicago federal court against leading cryptocurrency market maker Jump Trading for manipulating the price of its Decimated (IDO) game token.

Material by Bloomberg

What else is known? According to the lawsuit, FractureLabs planned to raise funds through an initial public offering of the DIO token on the HTX exchange (formerly Huobi) in 2021. The company selected Jump Trading as a market maker for DIO and loaned 10 million tokens to its subsidiary as part of the agreement. Separately, 6 million DIO were sent to HTX for sale to investors.

HTX promoted the token through influencers, causing its value to peak at $0,98. Thus, the coins lent to Jump Trading were valued at $9,8 million at the time.

According to the plaintiffs, Jump Trading then began systematically selling DIO in its possession at the peak of value, which brought it millions of dollars in revenue. In doing so, Jump’s sales pressure caused the DIO exchange rate to collapse to about $0,005. Thus, at that point, 10 million DIO provided to the market maker was valued at only $53 000.

After the value collapse, Jump re-purchased 10 million DIO, returned them to FractureLabs, and terminated its agreement with the studio to support the token marketplace.

“Jump concealed its true intent to use the initial offering of DIO as an opportunity to ‘pump and dump’ the token” FractureLabs stated.

The Pump&Dump scam scheme is widespread in the crypto space. It involves creating hype around an asset, spurring a rise in value. The attacker, initially possessing a large stock of the asset, drops it at the peak of its value, maximizing profits. This, in turn, leads to a collapse of the exchange rate, and ordinary investors are left with devalued tokens, having lost their investments.

The lawsuit specifies that Jump committed to keeping the price of DIO within the HTX-established range required for listing. However, a large-scale sell-off of DIO by Jump caused the token price to fall outside the required range, resulting in HTX refusing to refund most of the 1,5 million USDT stablecoins deposit that FractureLabs paid as part of the agreement.

Jump denied all allegations and stated its intention to defend itself. HTX is not a defendant in the lawsuit in the US court. Representatives of the exchange said they are “committed to operating in full compliance with all applicable laws and regulations,” but will not give detailed comments because the lawsuit is not over.

At the end of June, Kanav Kariya, the head of Jump’s crypto unit, left the company. His departure followed a difficult two years, during which the company was featured in proceedings about the collapse of the UST stablecoin from Terraform Labs Do Kwon, which became one of the largest incidents in the crypto space.

Earlier, the US Department of Justice accused cryptocurrency market maker GOTBIT, led by Russian Aleksei Andriunin, of running a massive Pump&Dump scheme. It is alleged that the company, with the help of accomplices, carried out fictitious trading of several tokens, which allowed it to overestimate trading volumes and their value, and then dumped the coins.