Movement Labs, one of the most closely watched Ethereum layer-2 startups of the past year, is in freefall.

On Thursday, the company announced it had suspended co-founder Rushi Manche as it grapples with the fallout from a controversial token arrangement that saw 66 million MOVE tokens dumped on the open market, sparking internal and public backlash.

“This decision was made in light of ongoing events and as the third-party review is still being conducted by Groom Lake regarding organizational governance and recent incidents involving a market maker,” Movement Labs announced on X.

The suspension follows reports that Movement Labs entered a market-making deal with Rentech, a shell company that claimed to be a subsidiary of Chinese firm Web3Port, but allegedly misrepresented its role and dumped its entire token allocation within 24 hours of MOVE’s launch.

The Foundation believed it was contracting Web3Port to provide liquidity for MOVE’s launch, but internal documents cited by CoinDesk revealed that Rentech appeared on both sides of the agreement, once as Web3Port’s representative, and again as an agent acting on behalf of the Foundation itself.

Manche allegedly forwarded early drafts of the contract and remained involved in both Movement Labs and the nonprofit Foundation, despite their intended separation, as per the report.

Manche did not immediately respond to Decrypt's request for comment. 

Legal counsel for the Movement Foundation had flagged the Rentech contract as deeply problematic, calling it “possibly the worst agreement” they had ever reviewed. 

Nevertheless, the deal was approved, and within 24 hours of MOVE’s December 9 debut, the 66 million tokens were sold into the open market, CoinDesk reported.

The third-party governance audit, conducted by Groom Lake, is probing his role in pushing the deal through.

In late March, Binance announced it had offboarded the market maker responsible for the MOVE dump, citing “misconduct,” and froze the $38 million it had profited from the dump.  

The exchange accused the firm, widely believed to be Rentech, of flooding its platform with sell orders while placing minimal buy support, creating an artificially thin market. 

Movement then responded to Binance’s allegations, saying the dump happened “against our wishes, without our consent, and was in breach of our agreement.”

The latest fallout deepened Thursday when crypto exchange Coinbase said it will suspend MOVE trading on May 15, citing a routine asset review. 

Following the announcement, MOVE plunged 14% to $0.20, its lowest ever, and is down 21% on the day, as per Coingecko data.

Inside the project’s Telegram group, moderator Merq confirmed Manche’s suspension and urged the community to await the outcome of the audit.

“The Foundation has commissioned a third-party investigation, the mod wrote. “We are waiting for the results so that we can all understand more clearly what has happened.”

Edited by Sebastian Sinclair