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Last week’s roundup of crypto promoters and traders following an elaborate sting operation by federal prosecutors served as a reminder that fake trades used to inflate prices continue to be lingering issue in the digital asset world.
The wash trading strategy used to boost the FBI-created token NexFundAI remains a common practice on decentralised-finance exchanges (dexes), and can be encountered on certain centralised exchanges as well, according to researcher Kaiko.
“Our data shows that many of the 200k+ assets on Ethereum dexes lack utility and are controlled by single individuals,” Kaiko analysts said in a report Thursday.
Some token issuers are setting up short-lived liquidity pools on the exchange Uniswap, and they control the pool liquidity and do wash trading to attract other investors, Kaiko said. Once others have come in, the issuers dump the token, earning yields of up to 22 times their initial Ether investment in around 10 days, Kaiko said.
“This analysis reveals widespread fraudulent behavior among token issuers, extending beyond the FBI’s NexFundAI investigation,” the report said.
A Uniswap spokesperson didn’t return a request for comment.
Certain centralised exchanges, such as HTX and Poloniex, also appear to have wash trading, Kaiko said. The exchanges have the highest number of assets with volume-to-liquidity ratios above 100 times, which can be an indicator of wash trading, according to Kaiko. Justin Sun, who is associated with both exchanges, was accused by the Securities and Exchange Commission last year of manipulating the secondary market for TRX token through wash trading. Sun has said the case “lacks merit.”
“At HTX, market integrity is our top priority. We are committed to providing a fair and transparent trading environment for all of our users,” an HTX spokesperson said. “While we appreciate the research being conducted in our industry, we must categorically deny any allegations of market manipulation.”
Examining the meme token Pepe, for example, Kaiko found “big differences in volume trends between HTX and other platforms in 2024. PEPE volumes on HTX stayed high and even rose in July, while they dropped on most other exchanges.”
“We also can see that tokens such as meme coins, privacy tokens, and low-cap altcoins often show unusually high volume-to-depth ratios,” Kaiko said.
Poloniex didn’t return a request for comment.
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