From a sample of approximately 30,000 DEX liquidity pools, Solidus' analysis revealed that 67% were manipulated by wash traders – traders who executed transparent or obfuscated self-trades solely to produce artificial movements in crypto tokens’ prices or volumes. Wash trading constituted 16% of the total trading volume of these manipulated pools. Given the sample size of pools Solidus reviewed, this is a lower-bound estimate of DEX-based wash trading volume.
"Market manipulation remains a significant challenge within the crypto industry, especially in an era of greater regulatory scrutiny and institutional adoption," said Asaf Meir, Solidus Labs’ Founder and Chief Executive. "The wash trading activity we have unearthed here is a clear sign of market manipulation, and it must be prevented for crypto and DeFi to flourish."
This report – the second in Solidus’ Crypto Market Manipulation Report Series – provides extensive data and specific examples of the main types of wash trading methods utilized by fraudsters. In DeFi, the fragmentation of liquidity across various DEXs makes for smaller markets that are more susceptible to price and volume manipulation. In one instance, Solidus identified a group of connected wallets that facilitated the wash-trading of a meme token named “SHIBAFARM” to attract speculators, manipulate its price, and then pull the rug on those speculators for a profit of more than $2 million.
Wash trading is well-addressed in traditional markets through trade surveillance and self-trade prevention mechanisms; while it is just as detectable and preventable on DEXs, a regulatory question remains regarding who is responsible for on-chain wash trading detection and prevention. As these questions are being answered, Solidus Labs is taking significant steps to de-risk DeFi by building out solutions to identify and prevent market manipulation. These solutions, such as Token Sniffer, DEX-Based Insider Trading and DEX-based A-A Wash Trading Detection, are rapidly becoming relied upon by crypto exchanges, regulators and investors.
About Solidus Labs
Solidus Labs is the category-definer for crypto-native market integrity solutions - trade surveillance, transaction monitoring, and threat intelligence. Our mission is to enable safe crypto trading throughout the investment journey across all centralized and DeFi markets. As the founder of industry-leading initiatives like the Crypto Market Integrity Coalition and DACOM Summit, Solidus is deeply committed to ushering in the financial markets of tomorrow. Crypto exchanges, financial institutions and regulators globally rely on Solidus HALO - our real-time, comprehensive, testable, and future-proof platform. Safeguarding their business from known forms of market abuse and a plethora of emerging crypto-specific risks, we enable our clients to grow faster - and safer. To learn more, please visit https://soliduslabs.com.