Ethereum’s Wash Trading Saga: $2 Billion in Manipulated Trades

The cryptocurrency industry has profoundly transformed the investment landscape, challenging traditional products like the stock market. However, global regulators, led by various agencies in the United States, have intensified their scrutiny of crypto projects in response to the mainstream adoption of blockchain technology.

For instance, during a hearing with the Senate Banking Committee at the Capitol building, US SEC Chair Gary Gensler acknowledged that the agency has harnessed Artificial Intelligence (AI) technology to monitor various market patterns.

In a report by Bloomberg, it was revealed that Solidus, a New York-based tech company specializing in monitoring crypto transactions, discovered that liquidity providers on decentralized financial (DeFi) platforms engaged in wash trading in approximately 67 percent of around 30,000 liquidity pools. Intriguingly, wash trades accounted for about 13 percent of the total trading volumes in these liquidity pools.

According to Will Kueshner, a researcher at Solidus, the report only focused on approximately 1 percent of all crypto pools, indicating that the prevalence of wash trading is even more significant. The report also highlighted that Ethereum-based decentralized exchanges have been involved in at least $2 billion worth of wash trades since September 2020, with liquidity providers manipulating nearly 20,000 coins during this period.

It’s worth noting that engaging in wash trading on decentralized platforms comes at a cost, especially on the Ethereum network, which incurs network fees ranging from $1 to $5. One token identified with a high incidence of wash trading is Shibafarm, where the deployer reportedly earned nearly $2 million within a few hours back in 2021.