The latest market manipulation report from Solidus Labs, specializing in crypto-native trade surveillance and risk monitoring, has identified wash trading activity of at least $2 billion worth of cryptocurrency on Ethereum-based decentralized exchanges (DEXs) since 2020.
Solidus Labs Exposes Wash Trading in DEXes
Solidus Labs analyzed a sample of approximately 30,000 DEX liquidity pools and found that wash traders manipulated 67% of them. Wash trading refers to traders executing transparent or concealed self-trades 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, part of Solidus Labs’ Crypto Market Manipulation Report Series, offers comprehensive data and specific examples of fraudsters’ primary methods for wash trading. Within the DeFi space, the dispersion of liquidity across various DEXs creates smaller markets more vulnerable to price and volume manipulation.
The paper also highlights an instance where Solidus identified a network of connected wallets that engaged in wash trading a meme token called “SHIBAFARM” to lure speculators, manipulate its price, and subsequently take advantage for a profit exceeding $2 million. That exemplifies the manipulative practices that must be addressed for the healthy growth of the crypto and DeFi sectors.
Asaf Meir, the Founder and Chief Executive of Solidus Labs, emphasized that market manipulation remains a significant challenge within the crypto industry, particularly in a time of increased regulatory scrutiny and growing institutional adoption. He stated that the wash trading activity they have unearthed here is a clear sign of market manipulation, and it must be prevented for crypto and DeFi to flourish.
Addressing On-Chain Wash Trading
Wash trading, a well-addressed issue in traditional markets through trade surveillance and self-trade prevention mechanisms, is equally detectable and preventable on Decentralized Exchanges (DEXs). However, in blockchain and DeFi, regulatory questions arise regarding who is responsible for on-chain wash trading detection and prevention.
As the industry grapples with these questions, Solidus Labs is pivotal in mitigating risks within DeFi. The firm is developing solutions like Token Sniffer, DEX-Based Insider Trading, and DEX-based A-A Wash Trading Detection.
Meanwhile, EDX Markets, a crypto exchange supported by major Wall Street entities like Citadel, Fidelity, Schwab, and others, recently partnered with Solidus Labs to bolster transaction monitoring on the EDX platform. The collaboration offers customers comprehensive transactional risk management solutions that align with institutional best practices and uphold the highest compliance standards in the cryptocurrency space.