Ethereum-Based DEXs Riddled With Wash Trades: Report Sheds Light On $2B Manipulation

Crypto-native trade surveillance and risk monitoring firm Solidus Labs on Tuesday identified $2 billion worth of wash trades on Ethereum ETH/USD-based decentralized exchanges (DEXs) since 2020.

This alarming revelation underscores the challenges and vulnerabilities present in the rapidly growing crypto sector.

As the crypto industry grapples with such revelations, events like Benzinga's Future of Digital Assets conference on Nov. 14 become increasingly pertinent. The conference will feature crypto's top thought leaders delving into the pressing challenges and future trajectory of digital assets, and given the recent findings by Solidus Labs, discussions on market manipulation are expected to be at the forefront.

Solidus Labs conducted an analysis of around 30,000 DEX liquidity pools, and found that 67% were tainted by wash traders.

These traders, either transparently or covertly, engaged in self-trades to artificially influence crypto tokens' prices or volumes.

The wash trading activities accounted for 16% of the total trading volume in these manipulated pools.

Given the vast sample size analyzed by Solidus, this figure is a conservative estimate of the actual extent of wash trading on DEXs.

Asaf Meir, Solidus Labs’ Founder and CEO, commented on the findings, stating, "Market manipulation remains a significant challenge within the crypto industry, especially in an era of greater regulatory scrutiny and institutional adoption. 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."

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Solidus Labs' report, the second installment in their Crypto Market Manipulation Report Series, offers a deep dive into the various wash trading techniques employed by malicious actors.

The fragmented liquidity in DeFi across different DEXs creates smaller markets, making them more vulnerable to price and volume manipulations.

In one notable case, Solidus pinpointed a network of linked wallets that manipulated the price of a meme token named SHIBAFARM SHIBAFARM/USD luring speculators before executing a "rug pull," resulting in profits exceeding $2 million.

While traditional markets have mechanisms to address wash trading, the crypto domain still grapples with the challenge.

The responsibility for detecting and preventing on-chain wash trading remains a gray area.

Read Next: SEC Chair Gensler Calls Crypto A 'Field Rife With Fraud, Abuse And Misconduct'

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