According to market monitoring firm Solidus Labs, over 20,000 crypto tokens have been manipulated via wash trading on a decentralized exchange (DEX) in the last three years.
In the second part of its 2023 Crypto Market Manipulation Report released on September 12, Solidus said that in a sample of 30,000 Ethereum-based DEX liquidity pools, it was found that nearly 70% have executed wash trades since September 2020 – representing approximately $2 billion Dollar equals value of crypto.
Wash trading is a form of market manipulation in which a company buys and sells the same asset, creating the false impression of market activity.
Big update! Revealing the second part of our crypto market manipulation report! Our data shows shocking $2 billion worth of #washtrades on DEXs since September 2020, affecting over 20,000 tokens! ⚠️
For detailed information, see our report here: https://t.co/pcRvMBGfb0
— Solidus Labs (@Solidus_Labs) September 12, 2023
Wash trades exist in traditional finance, but Solidus argues that market manipulators often have easier means of doing so in crypto.
“With cryptocurrencies, liquidity is fragmented across a variety of centralized and decentralized exchanges, resulting in smaller markets that are easier to manipulate.”
There is also an ongoing regulatory question over who is responsible for detecting and preventing on-chain wash trading – likely given the borderless nature of decentralized finance.
“Market manipulation remains a major challenge in the crypto industry, especially in a time of greater regulatory scrutiny and institutional acceptance,” Asaf Meir, founder and CEO of Solidus, said in a statement.
“The wash trading activity we uncovered here is a clear sign of market manipulation and must be prevented for crypto and DeFi to thrive.”
Solidus explained that wash traders come in all shapes and sizes: from token deployers looking for an easy rug pull; to speculators trying to outsmart an upcoming token airdrop; to exchange and marketplace operators who report higher trading volumes to attract investors and users.
Related: NFT Wash Trading Surges 126% in February: Data
In 2022, a study by the National Bureau of Economic Research found that more than 70% of unregulated exchange volume was wash trades.
According to the researchers, there are short-term incentives for wash trading and suggested fake transactions often impact exchanges’ rankings on data and statistics websites such as CoinMarketCap and CoinGecko.
In addition, fake transactions also have a short-term impact on crypto prices within exchanges.
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