Decentralized exchanges a magnet for crypto wash traders: Solidus Labs

September 13, 2023 Coin Telegraph

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 s aid 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.

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.

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350 new ‘scam tokens’ were created every day this year: Solidus Labs

December 19, 2022 Coin Telegraph

BEP-20

Nearly 118,000 scam tokens were deployed from the start of January through the end of November, according to blockchain risk monitoring firm Solidus.

More than 350 fraudulent cryptocurrency tokens were created per day this year, defrauding millions of investors, according to blockchain risk monitoring firm Solidus Labs.

From the start of the year to Dec. 1, 117,629 “scam tokens” were deployed, according to Solidus’ 2022 “Rug Pull Report.” That’s a 41% increase from the nearly 83,400 scam tokens that Solidus detected in 2021.

The report claims that BNB Chain harbors the greatest number of scam tokens, with 12% of all BEP-20 tokens being fraudulent.

The Ethereum network was second, with a purported 8% of ERC-20 tokens alleged to be scams.

*Solidus claims that 2022 is the biggest year on record for fraudulent crypto-tokens. Image: Solidus Labs*

A rug pull is a type of crypto exit scam where an individual or team creates a token and pumps up its price before extracting all the value from the project, abandoning it as the token price plummets to zero.

Almost 2 million investors have lost money to these scams since September 2020, a greater numberthan the estimated 1.8 million combined creditors affected by the bankruptcies of crypto exchanges and lending platforms FTX, Celsius, and Voyager.

*FTX, Celsius, BlockFi and Voyager bankruptcies are estimated to affect over 2.3 million users combined. Image: Solidus Labs*

The most popular type of scam token was a “honeypot," which is a token smart contract that doesn’t allow buyers to resell.

Solidus said the most prolific “honeypot” successfully executed in 2022 was the $3.3 million Squid Game (SQUID) token scam, which grew 45,000% in a few days as investors bought the hype but were unable to sell, ending with the anonymous founders apparently running off with investor funds.

Centralized exchanges (CEXs) are also affected by rug pulls as many behind these malicious tokens use them to fund their fraudulent project and cash out the ill-gotten gains.

Solidus claims around $11 billion worth of Ether (ETH) pilfered from scam tokens flowed through 153 CEXs since September 2020, with the majority of the exchanges being overseen by United States regulators.

Nearly $4 billion dollars flowed to U.S. CEXs in the analyzed time frame which was nearly double that of the second-most exposed CEX jurisdiction: The Bahamas.