Solidus Labs, a company specializing in crypto-native trade surveillance and risk monitoring, has published a report highlighting significant wash trading activity in decentralized exchanges (DEXs) on the Ethereum blockchain. Here are the key findings from the report:
- Wash Trading Volume: The report estimates that crypto token deployers and liquidity providers engaged in wash trading activities amounting to at least $2 billion worth of cryptocurrency on Ethereum-based DEXs since 2020.
- Sample Pools: Solidus Labs analyzed approximately 30,000 DEX liquidity pools and found that 67% of them had been manipulated by wash traders. Wash trading accounted for 16% of the total trading volume in these manipulated pools. The report notes that this figure represents a lower-bound estimate of DEX-based wash trading volume.
- Market Manipulation Challenge: Market manipulation remains a significant challenge within the cryptocurrency industry, especially as regulatory scrutiny and institutional adoption increase.
- Wash Trading Methods: The report provides data and examples of various wash trading methods used by fraudsters in decentralized finance (DeFi) environments. DeFi’s fragmented liquidity across multiple DEXs makes it more susceptible to price and volume manipulation. For instance, the report identifies a group of connected wallets that facilitated wash trading of the “SHIBAFARM” meme token to manipulate its price and profit by more than $2 million.
- Regulatory Questions: While wash trading is well-addressed in traditional financial markets through trade surveillance and self-trade prevention mechanisms, questions remain regarding the responsibility for on-chain wash trading detection and prevention in the DeFi space.
- Solidus Labs Solutions: The report highlights that Solidus Labs is actively working on solutions to identify and prevent market manipulation in DeFi. These solutions include Token Sniffer, DEX-Based Insider Trading detection, and DEX-based A-A Wash Trading Detection.
Overall, the report underscores the importance of addressing wash trading and other forms of market manipulation in the crypto and DeFi sectors to ensure the integrity and trustworthiness of these markets, particularly in the context of increasing regulatory oversight and institutional involvement.
By FCCT Editorial Team
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