decentralized exchanges

Token deployers and liquidity providers wash-traded over $2 billion worth of crypto on Ethereum-based DEXs since 2020, a Solidus Labs report claims.

Over 20,000 crypto tokens have been manipulated via decentralized exchange (DEX) wash trading in the last three years, according to market surveillance firm Solidus Labs.

In the second part of its 2023 Crypto Market Manipulation Report released Sept. 12, Solidus said among a sample of 30,000 Ethereum-based DEX liquidity pools, nearly 70% were found to have executed wash trades since September 2020 — making up for around $2 billion worth of crypto.

Wash trading is a form of market manipulation where an entity buys and sells the same asset giving the false impression of market activity.

Major Update! Unveiling Part Two of our Crypto Market Manipulation Report! Our data shows a shocking $2 billion #washtrades on DEXs since Sept 2020. That's affecting over 20,000 tokens! ⚠️

Full details here in our report: https://t.co/pcRvMBGfb0

— Solidus Labs (@Solidus_Labs) September 12, 2023

Wash trades are present in traditional finance, however, Solidus argued market manipulators often have easier means to do so when it comes to crypto.

“In crypto, liquidity is fragmented across a variety of centralized and decentralized exchanges, resulting in smaller markets that are easier to manipulate.”

There’s also an ongoing regulatory question over who is responsible for on-chain wash trading detection and prevention — likely given the borderless nature of decentralized finance.

"Market manipulation remains a significant challenge within the crypto industry, especially in an era of greater regulatory scrutiny and institutional adoption," Solidus founder and CEO Asaf Meir said in a statement.

"The wash trading activity we have unearthed here is a clear sign of market manipulation, and it must be prevented for crypto and DeFi to flourish.”

Solidus explained wash traders come in all shapes and sizes, from token deployers looking for an easy rug pull; to speculators attempting to game an upcoming token airdrop; to exchange and marketplace operators reporting higher trading volumes to attract investors and users.

Related: NFT wash trading increases by 126% in February: Data

In 2022, a National Bureau of Economic Research study suggested more than 70% of unregulated exchange volumes were wash trades.

According to the researchers, there are short-term incentives for wash trading and suggested fake transactions often impact the rankings of the exchanges on data and statistics websites such as CoinMarketCap and CoinGecko.

In addition, fake transactions also affect the crypto prices within the exchanges over the short term.

Hodler’s Digest, Sept. 3-9: Binance’s exec exodus, Nasdaq to trade AI orders and SBF loses bail appeal