How Rushi Manche’s secret deals sent a token into freefall and opened a new regulatory headache for crypto

A sudden scandal and an angry market

Last week a string of reports and on‑chain traces pointed to alleged secret deals tied to Rushi Manche, a co‑founder of Movement Labs. The result was immediate: the token closely linked to Movement Labs plunged, trading turned chaotic and liquidity that normally soaks up large trades simply disappeared. Exchanges widened spreads and some market‑making desks stepped back. For holders and traders the hit felt abrupt and personal — a swing from quiet confidence to sharp fear in hours.

How the story unfolded, step by step

The thread starts with private token allocations that, on paper, were meant to vest over time. According to multiple on‑chain signals and copies of contracts that have circulated in industry chat rooms, parts of these allocations were moved into a web of intermediary wallets and shell entities. Those intermediaries then routed tokens through a combination of over‑the‑counter (OTC) brokers, decentralized exchanges and automated market maker pools.

Early signs: unusually large transfers from wallets tied to Movement Labs to previously dormant addresses, followed by a flurry of sells across venues. Soon after, several OTC desks reported filling big sell orders without the usual disclosures, and market data teams started flagging an outsized share of the token’s turnover traced to a small set of wallets.

As the selling built up, private contracts emerged in public discussion — agreements that allegedly promised third parties early, cheap access to tokens in return for services or quiet partnerships. Some agreements included steep cliff vesting with carve‑outs that could be triggered by certain deals or by the intervention of a designated adviser. That adviser, according to the narrative on the market, played a key role in arranging sales and routing the proceeds.

Within 48 hours the token’s tradability had fractured. Liquidity pools that once absorbed normal volumes showed deep gaps; slippage on larger trades ballooned; and a few centralized venues temporarily widened price bands to protect against outsize moves. The end result: anyone trying to exit a position faced either heavy losses or the practical inability to find a counterparty.

How opaque allocations became market stress

There are three mechanics that turned a governance issue into market pain.

First, concentration. A small number of wallets controlled a disproportionate share of available supply. When those wallets started moving, the market had to digest far more tokens than usual in a short time. That stressed order books and drained liquidity pools.

Second, the route of sale. Selling large chunks through OTC desks and then into multiple venues can hide immediate price impact, but it doesn’t eliminate it. The money that appears to come from diverse buyers often aggregates into the same liquidity providers. Once those providers adjust risk limits or pull back, the apparent depth vanishes.

Third, information asymmetry. Some counterparties and early buyers appeared to have contract terms and timing that retail holders did not. When those privileged parties started to distribute tokens, the wider market reacted only after prices had already moved, amplifying volatility.

On‑chain analytics showed classic stress signals: spikes in transfer volume from core wallets, a collapse in typical trade sizes as slippage rose, and a widening gap between mid‑market prices and last trade prices across venues. In short: the market was being asked to clear trades it was not built to absorb without visible, reliable supply appearing at the right prices.

Where regulators and lawyers are likely to focus

This episode sits at the intersection of disclosure rules and market manipulation laws. Regulators will be asking whether the token in question should be treated as a security or as a commodity, and whether the people who arranged sales had an obligation to disclose material terms to the market.

If authorities find that contracts obscured material facts, or that certain actors profited by trading on non‑public information, enforcement actions could include civil penalties, demands for disgorgement of profits, and orders to halt certain practices. In cases where fraud or deliberate concealment is proven, criminal probes are possible — though those are rarer and require a higher burden of proof.

Enforcement agencies also have toolkit options beyond prosecutions: they can require clearer disclosure standards for token vesting, push exchanges to demand audited allocation schedules before listing, or impose sanctions on intermediaries who knowingly facilitate opaque sales. Expect cross‑border complications too, because wallets and counterparties can easily span jurisdictions.

What this means for holders, funds and counterparties

For retail holders the clear lesson is that concentration in token supply is a real, tradable risk. Tokens that look healthy on price charts can become thin the moment large holders move. For funds and professional counterparties, the episode highlights operational risks: undisclosed side agreements, mixing OTC fills with market sales, and weak internal controls can quickly translate into liquidity blackouts.

My read: this is a negative setup for current holders and for anyone relying on token liquidity as a safety valve. Portfolios that still hold sizeable positions in the token should mark exposures lower, consider trimming allocations where concentration risk is high, and press counterparties for clearer proof of how their positions were acquired.

Broader fallout: governance reforms or deeper cynicism?

The industry now faces a choice. One path is constructive: exchanges, custodians and projects tighten rules around token allocation disclosure, insist on audited vesting schedules, and adopt multi‑signature escrows for founder allocations. Those changes would restore some confidence and make large covert sales harder to execute without notice.

The other path is reputational damage. If big players treat this as fodder rather than a wake‑up call, retail appetite for early‑stage tokens could dry further, funding rounds could shift to private, vetted investors only, and regulators will feel justified in taking a sterner hand.

Right now the market reaction suggests pressure for reform. But reforms require coordination and cost. Until exchanges and major custodians take firm steps, the default state will be suspicion — which is bad for liquidity and bad for long‑term valuations.

For crypto investors the Manche episode is a practical reminder: governance and allocation mechanics matter as much as technology. When those mechanics are murky, the market will punish what it cannot price.

Photo: Karola G / Pexels

Sources

• linkedin.com
• coindesk.com
• coindesk.com
• coindesk.com
• coindesk.com
• coindesk.com