The latest market manipulation report from Solidus Labs, which specializes in crypto-native trading surveillance and risk monitoring, has identified at least $2 billion worth of cryptocurrency wash trading activity on Ethereum-based decentralized exchanges (DEXs) since 2020.
Solidus Labs Unveils Wash Trading on DEXes
Solidus Labs analyzed a sample of approximately 30,000 DEX liquidity pools and found that wash traders manipulated 67% of them. Wash trading involves traders conducting transparent or covert self-trading to create artificial movements in the prices or volumes of crypto tokens. Wash trading accounted for 16% of the total trading volume in these manipulated pools.
The report is part of Solidus Labs’ Crypto Market Manipulation Reports series and provides comprehensive data and concrete examples of scammers’ primary wash trading methods. In the DeFi space, the dispersion of liquidity across different DEXs means that smaller markets become more vulnerable to price and volume manipulation.
The paper also highlights a case in which Solidus identified a network of connected wallets that engaged in wash trading of a meme token called “SHIBAFARM” to attract speculators, manipulate its price and subsequently make a profit of over US$2 million -dollars to achieve. This is an example of the manipulative practices that must be addressed for the healthy growth of the crypto and DeFi sector.
Asaf Meir, the founder and CEO of Solidus Labs, emphasized that market manipulation in the crypto industry remains a major challenge, especially at a time of increasing regulatory scrutiny and increasing institutional acceptance. He explained that the wash trading activities uncovered here are a clear sign of market manipulation and that crypto and DeFi must be prevented from flourishing.
Dealing with on-chain laundering trading
Wash trading, a problem well addressed in traditional markets through trade surveillance and self-trading prevention mechanisms, is equally detectable and avoidable on decentralized exchanges (DEXs). However, blockchain and DeFi raise regulatory questions about who is responsible for detecting and preventing on-chain wash trading.
As the industry grapples with these questions, Solidus Labs is playing a critical role in mitigating the risks within DeFi. The company develops solutions such as Token Sniffer, DEX-based Insider Trading and DEX-based AA Wash Trading Detection.
Meanwhile, EDX Markets, a crypto exchange backed by major Wall Street firms such as Citadel, Fidelity, Schwab and others, recently partnered with Solidus Labs to improve transaction monitoring on the EDX platform. The collaboration provides clients with comprehensive transaction risk management solutions that are aligned with institutional best practices and adhere to the highest compliance standards in the cryptocurrency space.
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