Decoding the Wintermute Pattern: How Market Makers Manipulate Altcoin Prices to Land on Tier-1 Exchanges

If you find that $griffain continues to fall and want to know when it will stabilize, you can analyze the "Wintermute Pattern".

Author: @dittochu_

Compiler: @GodotSancho

If you find that $griffain continues to fall and want to know when it will stabilize, you can analyze the "Wintermute Pattern".

Wintermute is a crypto asset market maker, and one of their important businesses is to help small projects (Alts) land on first-tier platforms (such as Binance). Some investors have found that when Wintermute participates in market making for a project, the price of the currency often shows a specific trend, which is called the "Wintermute mode."

Why does the Wintermute market-making project usually fall first and then rise? To answer this question, we need to understand its trading strategy.

Wintermute adopts a Delta Neutral strategy (Delta Neutral means eliminating token volatility risk through hedging) to avoid directional trading. In the process of market making, they often reach an agreement with existing token holders, borrow coins from project parties or whales, and buy call options at the same time to profit when prices rise.

Take $griffain as an example, assuming that 40 million tokens are borrowed, which is equivalent to 4% of the total token supply. Then, they will sell part of the $griffain and exchange it for SOL or stablecoins to provide liquidity. In essence, this is a short-selling operation, which makes a profit by borrowing tokens and selling them.

The tokens are sold and the price drops. Wintermute will buy back $griffain at a lower price because they will need to return the borrowed tokens later, that is, close their short position. At the same time, they avoid causing large price fluctuations when covering transactions. Thus, they make money during the price drop.

When the price dropped, over the past few days they have been buying back $griffain in small amounts of $150 at a time, executing dozens of orders per minute.

Eventually, Wintermute buys back all the $griffain that was previously borrowed. When the buyback is complete, the price will rebound. They make a profit from the short sale, and this profit may also be used to pay the exchange listing fees. By this stage, the trading volume of $griffain will also increase significantly, which will help convince exchanges to list it.

When $griffain is listed on a first-tier platform, such as Binance, the price will skyrocket. Back to the initial mention of buying call options (Call Option). The strike price of these options is usually 25% to 50% higher than the market borrow price. But recently, due to market maker operations, the strike price has been pushed up to 60% to 70% of the borrow price.

So let’s look at the on-chain data. First, we’ll try to determine where Wintermute is in the so-called “Wintermute mode”.

One of the tools we can use here is Agent Scarlett ($agency). This is a $3 million project invested by ai16z and ElizaOS, and currently has one of the best on-chain analysis capabilities on the market. Although there are some places where you can use this tool for free, for now I will use the tool in the ai16z Discord public channel.

Using the Scarlett tool, we can see that Wintermute has begun to re-accumulate $griffain. Using the Solscan data, we can also see that Wintermute first intervened on January 23. This is exactly when $griffain recently peaked.

https://solscan.io/tx/4uubnPQXwdo1bAehv64eBMS6D2waE8abdMukTsVLhWeju2WbVY8WRzxRp8cxqy2MVTw39trnQdRF1oerktYANg1T

In summary, market makers are very smart and they make money both when prices fall and when they rise. When Wintermute intervenes, their market making behavior will disrupt price movements, but in exchange, your tokens may be listed on the first-tier exchanges.

Don’t forget the call options Wintermute has on $griffain. When they close their short, the first-tier exchanges will likely list $griffain. And in order for them to profit on the options, the price would need to rise 25% to 70% from the level they borrowed. The price on January 23rd was around $0.50. If the Wintermute pattern fully forms here, we could see $griffain prices reach $0.60 to $0.85 in a few weeks.