The Dark Side of Cryptocurrency Revealed in a Bear Market. Recently, as the primary market continues to struggle, a single issue has come into focus across the entire industry. The "Loan Option Model" cooperation method used by market makers is causing more damage to small projects than expected.

On the surface, it sounds good. Emerging projects lend tokens to market makers for free or at low cost, and market makers provide market liquidity. It should be mutually beneficial. However, a mechanism that worked well in a bullish market has begun to be exploited by some malicious actors in a bearish market.

Their tactics are simple but clever. They sell off borrowed tokens en masse to crash the price, then buy back at a low price and return them. Or they profit from short positions. It’s not uncommon for token prices to halve within days, evaporating the project’s market value. Investors who notice what’s happening also start selling, and the market plunges into panic. If the project falls foul of exchange delisting criteria, it is effectively "killed."

What’s worse is that these cooperation agreements are often hidden behind NDAs (Non-Disclosure Agreements). Project teams with technical backgrounds sign contracts without realizing they are falling into financial market traps. The asymmetry of information creates disparities that turn small projects into prey for predatory acts.

They manipulate fake trading volume through wash sales, hide large margins and exorbitant bonuses, or move funds between multiple projects to create situations where one profits and another loses. These tactics thoroughly exploit regulatory loopholes in the cryptocurrency market and the inexperience of project insiders.

Interestingly, traditional financial markets have faced similar issues. Bear raids, market manipulation, insider trading. During the 2008 financial crisis, hedge funds accelerated market panic by maliciously shorting bank stocks. But conventional markets have mature mechanisms to address these problems.

The SEC’s rules, such as SHO, prohibit naked short selling and require actual borrowing of stocks before shorting. They suppress malicious price drops with "uptick rules." Market manipulation is explicitly banned, with violators facing crippling fines or imprisonment. Listed companies must report their contracts with market makers to regulators, and trading data is publicly available. Exchanges monitor trading in real-time with algorithms to detect abnormal fluctuations and volume. Circuit breakers automatically halt trading during sharp price movements to prevent panic.

Industry regulators like FINRA set ethical standards for market makers and require fair market information provision. NYSE designated market makers must meet strict capital and conduct requirements. Investors harmed can pursue responsibility through class-action lawsuits. SIPC provides compensation for losses caused by broker misconduct.

While not perfect, these layered protective networks have significantly reduced predatory behavior in traditional markets.

So why is the cryptocurrency market so vulnerable? First, regulation is immature. Global regulations are like a puzzle, with many regions lacking clear rules on market manipulation and market makers. Second, the market size is too small. A single market maker’s operations can cause dramatic price swings in crypto tokens, whereas large-cap stocks in traditional markets are much harder to manipulate so easily.

The inexperience of project teams is also critical. Many are tech enthusiasts with little knowledge of finance. They sign agreements without recognizing the pitfalls of the loan option model, falling prey to market makers. Moreover, confidentiality agreements are standard in crypto. While such secrecy has been targeted by regulators in traditional markets, it has become commonplace here.

These factors combined make small projects targets for predatory acts in the primary market. The entire industry’s trust and healthy ecosystem are gradually eroded by this chaos.

Personally, I believe the crypto industry can learn a lot from traditional finance. Building a layered protection network that combines supervision, transparency, and accountability is key to creating a relatively fair environment. Filling regulatory gaps, reducing information asymmetry, and increasing the experience of project insiders are essential. Until these are achieved, the vulnerabilities of the cryptocurrency market will remain unaddressed.