Fracture Labs claims Jump Crypto engaged in a pump and dump scheme, causing significant losses.
Fracture Labs Sues Jump Crypto Over Pump and Dump
Fracture Labs, the developer of the post-apocalyptic Web3 game Decimated, has taken legal action against Jump Crypto. The lawsuit alleges that Jump Crypto manipulated the game’s in-game currency, DIO, in a scheme violating their agreement. The suit claims the market maker conspired with the crypto exchange Huobi, now rebranded as HTX, to freeze $1.4 million of Fracture Labs’ funds.
Background of Fracture Labs
Fracture Labs created Decimated, a game described on its website as “a post-apocalyptic survival game with elements of cyberpunk.” The game’s currency, DIO, currently has a market cap of about $10 million. As the game’s developer, Fracture Labs aims to offer players an engaging experience while navigating a dystopian world filled with challenges.
Allegations Against Jump Crypto
The lawsuit, filed on October 15 in the Northern District of Illinois, details how Jump Crypto purportedly conducted a pump-and-dump scheme. This involved selling off DIO tokens, significantly affecting the token’s value and violating their contractual agreement. Fracture Labs claims that Jump Crypto’s actions were fraudulent and detrimental to the game’s financial stability.
Jump Crypto’s Role and Market Manipulation
Jump Crypto, a division of Jump Trading Group, provides market-making services to various crypto exchanges and invests in Web3 startups. According to the complaint, in late 2021, Jump Crypto offered to assist Fracture Labs with consultations, market-making services, and introductions to crypto exchanges. However, after Jump allegedly advised Fracture Labs to launch DIO on HTX instead of KuCoin, the situation deteriorated.
The Initial Agreement
Under the terms of the agreement, Fracture Labs loaned 30 million DIO tokens to Jump Crypto’s subsidiary, J Digital. This arrangement was meant to ensure liquidity in the market, allowing traders to buy and sell tokens easily. Fracture Labs also deposited $1.5 million in Tether (USDT) as a security deposit with HTX, meant to protect against potential market manipulations.
Breakdown of the Token Launch
On December 29, 2021, DIO launched at a price of $0.98 on its first day. However, as the price dropped to $0.90, Jump Crypto allegedly initiated a massive sell-off of borrowed DIO tokens, trading over 4 million DIO worth $2 million. This action contributed to a drastic price decline, dropping to $0.53 and eventually down to $0.0054. The sales raised concerns about Jump Crypto’s commitment to legitimate market-making practices.
Financial Fallout for Fracture Labs
Fracture Labs asserts that Jump Crypto’s actions harmed the value of DIO tokens and resulted in substantial financial losses. They claim that the manipulation led to a loss of $1.38 million from their HTX deposit account. Due to Jump Crypto’s selling, HTX deducted penalties from the initial deposit, leaving Fracture Labs with only $350,000.
Impact on the Development Team
Stephen Arnold, founder of Fracture Labs, expressed the severe impact of these losses on his team. After the deposit loss, he was forced to reduce his staff from 55 to 25 members. Despite these challenges, the team managed to release an alpha version of Decimated and is continuing its development.
Questions of Responsibility
Arnold raised critical questions about responsibility in the situation. He argued that Fracture Labs should not be penalized for price fluctuations beyond their control. He emphasized that the market makers were responsible for maintaining the token’s price stability.
Response from Jump Crypto and HTX
Cointelegraph reached out to Jump Crypto for comment, but they had not responded at the time of publication. The allegations in the lawsuit remain unproven, and Jump Crypto is entitled to a period to formulate its defense. HTX has stated its commitment to compliance with laws and regulations and noted that it could not comment further due to ongoing litigation.
Market Manipulation in the Crypto Space
Concerns over market manipulation have persisted among crypto users. Allegations suggest that market makers may engage in price manipulation during token launches, yet proving such misconduct has proven challenging. Recent indictments from the U.S. Securities and Exchange Commission (SEC) against individuals associated with crypto market-making firms mark a significant development in tackling manipulation in the crypto industry.
The Future of Fracture Labs
The lawsuit against Jump Crypto highlights significant challenges within the rapidly evolving crypto landscape. As the case unfolds, the repercussions for Fracture Labs and its ambitious Decimated project remain uncertain. The outcome could have broader implications for market-making practices and the protection of developers in the crypto space.
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