A cryptocurrency analysis firm claims that billions of dollars in market capitalization are being transferred through decentralized exchanges (DEX) on Ethereum (ETH). Solidus Labs alleges in a new report that crypto token distributors and liquidity providers have engaged in at least $2 billion worth of fake trading on Ethereum-based DEX since 2020.
The mentioned situation involves organizations artificially inflating their trading volumes to attract more investments and liquidity by buying and selling assets at the same price. According to Solidus, approximately 67% of the analyzed liquidity pools from around 30,000 DEX were manipulated by investors.
At the same time, this manipulated activity represents 16% of the total trading volume in manipulated pools, and the firm suggests that this is a conservative estimate considering the size of the analyzed transactions. The analytical firm stated the following in their remarks:
Fragmentation of liquidity among various DEX creates smaller markets that are more susceptible to price and volume manipulation.
The report suggests that a connected group of wallets engaged in fake trading on the meme token ShibaFarm to attract speculators. It is also claimed that this activity resulted in profits of over $2 million. Asaf Meir, the founder and CEO of Solidus Labs, stated that addressing fake trading in cryptocurrencies is important in an environment of increased institutional interest and regulatory scrutiny. An expert on the subject said the following:
The fake trading activity we uncovered here is a clear indication of market manipulation, and it needs to be addressed to prevent hindrances to the development of crypto and DeFi.
In conclusion, Solidus Labs’ report highlights the magnitude and significance of fake trading on Ethereum-based decentralized exchanges (DEX), emphasizing the need for market manipulation prevention and increased regulations.