A crypto surveillance firm says that billions of dollars in fake market volume are flowing through decentralized exchanges (DEXs) on Ethereum (ETH).
In a new report, Solidus Labs says crypto token deployers and liquidity providers have wash traded at least $2 billion worth of crypto assets on Ethereum-based DEXs since 2020.
Wash trading involves entities buying and selling an asset at the same price from themselves to artificially inflate the trading volume and attract more investments and liquidity
According to Solidus, 67% of the roughly 30,000 DEX liquidity pools it analyzed were manipulated by wash traders. Wash trading also constitutes 16% of the total trading volume in the manipulated pools, which the firm says is a lower-bound estimate given the size of the sample reviewed.
“In DeFi, the fragmentation of liquidity across various DEXs makes for smaller markets that are more susceptible to price and volume manipulation.”
The report says a group of connected wallets wash-traded the meme token ShibaFarm to attract speculators. The wash traders eventually rug-pulled the investors and made a profit of over $2 million.
Solidus Labs founder and chief executive Asaf Meir says it is important to address wash trading in crypto amid growing institutional interest and increased scrutiny from regulators.
“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.”