Market surveillance firm Solidus Labs has revealed that over the past three years, more than 20,000 cryptocurrency tokens have been subject to manipulation through wash trading on decentralized exchanges (DEXs).
In the second segment of its “2023 Crypto Market Manipulation Report,” released on September 12, Solidus disclosed that within a sample of 30,000 Ethereum-based DEX liquidity pools, nearly 70% were involved in executing wash trades since September 2020. These deceptive transactions amounted to approximately $2 billion in cryptocurrency.
Wash trading is a deceptive tactic where an entity artificially inflates trading activity by buying and selling the same asset, creating a misleading appearance of market activity. While wash trading exists in traditional finance, Solidus argued that manipulators often find it easier to engage in such activities in the crypto space. Additionally, there remains an ongoing regulatory debate about who is responsible for detecting and preventing on-chain wash trading, especially given the borderless nature of decentralized finance.
Asaf Meir, the founder and CEO of Solidus, noted, “Market manipulation remains a significant challenge within the crypto industry, especially in an era of greater regulatory scrutiny and institutional adoption.”
Wash traders can vary in their motivations, from token issuers seeking to orchestrate a “rug pull” scam, to speculators attempting to exploit upcoming token airdrops, and even exchange and marketplace operators trying to inflate trading volumes to attract more investors and users.
In 2022, a study by the National Bureau of Economic Research suggested that over 70% of trading volumes on unregulated exchanges consisted of wash trades. These manipulative practices often impact the rankings of exchanges on data and statistics websites like CoinMarketCap and CoinGecko. Moreover, fake transactions can have short-term effects on crypto prices within these exchanges.
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