Mantra, market makers allegedly exploited validation gaps to inflate OM token liquidity

Mantra and associated market makers allegedly manipulated liquidity metrics for the OM token by exploiting vulnerabilities in data aggregators’ self-reporting systems, according to discussions on the latest edition of “The Chopping Block” podcast. 

The scheme involved misrepresenting the circulating supply and trading volume of OM to create the appearance of broader market activity than existed.

Podcast participants explained that the Mantra team worked with market makers to simulate trading volume. This involved cycling tokens among controlled addresses and exchanges to inflate volume figures without significant organic participation. 

As a result, OM appeared to be a top-25 asset by market capitalization despite less than 1% of the token supply being genuinely liquid, according to on-chain observers.

The tactic relied on gaps in CoinGecko and CoinMarketCap’s validation processes. Both platforms primarily depend on self-reported data from project teams, cross-referenced with listings on major exchanges and surface-level blockchain analytics. 

However, motivated actors can circumvent these checks by allocating tokens to market makers and orchestrating on-exchange activity that superficially mirrors organic trading, even when retail participation is absent.

The fabricated liquidity collapsed when a large OM holder attempted to liquidate, triggering a 90% price decline within 90 minutes. As participants in the podcast noted, the incident erased billions in market capitalization and exposed the fragility of the asset’s actual trading depth.

Potential solutions

Industry figures proposed several solutions to address the loopholes that enabled the OM incident. 

One suggestion was to require the disclosure of all market-making agreements as a condition for listing tokens on major exchanges, such as Binance and Coinbase. 

Transparent disclosure would reveal if the support for the trading volume is a genuine distribution or primarily orchestrated through incentivized liquidity arrangements.

This concept mirrors practices in traditional finance, where securities filings disclose market-making contracts for public equities. 

In crypto markets, such disclosures would need to include rebate structures, loan terms, inventory risk responsibilities, and any volume guarantees provided by market makers.

Another solution discussed was enhanced verification of token distribution claims. Exchanges and data aggregators could implement stricter on-chain validation standards, including wallet audits and assessments of wallet ownership concentration, to ensure that reported circulating supplies are independently verifiable.

Challenges

However, participants acknowledged potential challenges. Market makers may resist disclosures to protect proprietary arrangements, and exchanges could face higher operational costs. 

Additionally, there is also a risk that enforcement without regulatory backing could lead to uneven adoption across platforms, creating opportunities for bad actors to exploit arbitrage.

Despite these hurdles, the consensus on the podcast was that coordinated action by major exchanges could substantially mitigate the issue. 

If leading venues mandated transparency for new listings, projects seeking legitimate liquidity access would have strong incentives to comply, potentially driving out practices that undermine user trust and market stability.

The collapse of OM and the allegations surrounding its liquidity practices have renewed scrutiny on data reporting standards across the crypto industry.

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