The winds of change are blowing in the crypto world, with decentralized exchanges setting record activity – and a new report from Solidus Labs reveals some unsettling consequences. A latent threat of corrupted market data, misused exchanges, and wash trading casts a troubling shadow over the crypto industry – and the report highlights $2 billion in wash trading activity across major DEXs over the course of the year.
1. Detecting Defrauding: Solidus Labs Uncovers $2 Billion Worth of Wash Trades
In the world of cryptocurrency, incidents of fraud and mismanagement are unfortunately not uncommon. This can lead to a loss of investor money as well as a decrease in overall trust and confidence in the industry. Recognizing this issue, US blockchain security company Solidus Labs created a sophisticated fraud detection system to help identify suspicious activity.
The technology works by analyzing blockchain data and is able to uncover fraudulent operations including wash trading. As of recently, the system has identified $2 billion worth of wash trades, which is when a trader takes an action with no real economic purpose outside of artificially manipulating market prices. The system even offers a public leaderboard for tracking the market’s biggest suspected offenders.
- Identifies Fraud: the Solidus Labs system is able to detect unusual actions, such as wash trading, that are typically used to defraud investors.
- Impactful Results: the system has already identified $2 billion worth of wash trade activities.
- Transparent: A public leaderboard tracks the biggest alleged offenders.
2. Decentralized Exchanges: A Growing Issue of False Trading
The emergence of decentralized exchanges (DEXs) has increasingly grown in the cryptocurrency industry, yet with the advancements has come an ever-growing issue – false trading. False trading has become a nuisance and deceiver of the public when dealing with DEXs due to their non-custodial and trustless environment.
False trading has a multitude of different forms and can appear as follows:
- Wash Trading: Widespread false trading practice where a trader simultaneously buys and sells the same assets at similar prices to generate the illusion of liquidity
- Market Manipulation: Also known as ‘pump and dump’, artificially inflating the prices of securities by spreading false and optimistic information
- Spoofing: Market tactic where a trader posts numerous orders with no intention of executing them, instead to move the market in the desired direction
The problem of false trading should not be underscored in DEXs, as they now account for a large portion of cryptocurrency trading. Therefore, industry authorities must form a set of rules and regulations to prevent the corruption and manipulation of trading on these markets.
3. Unveiling Deceptive Practices, Curbing Market Manipulation
The economic environment of today’s market is saturated with deceptive practices and manipulation, making healthy investments increasingly difficult to spot. It’s crucial to stay vigilant and leverage every tool available to guard against such misleading strategies, or else risk being fleeced of valuable assets.
To dissuade malicious traders from taking advantage of unsuspecting participants, the government enforces a set of laws and regulations to oversee market activity. An Securities and Exchange Commission (SEC) protects buyers and sellers from fraudulent schemes and unfair pricing. Companies must register with the SEC before offering any securities, and disclosing all relevant facts are also of utmost importance. Uncensored disclosure helps mitigate market manipulation and allows investors to make informed decisions. In addition, companies use administrative and accounting procedures, like internal attitude, to prevent fraud.
- Do Your Research: Be sure to properly investigate any market idea before jumping in.
- Know the Warning Signs: Be aware of any deception or market manipulation tactics commonly practiced by scheming traders.
- Monitor Deals Carefully: Keep a watchful eye on any transactions and investments you enter into.
4. Shedding Light on Wash Trades, a Growing Risk to Investors
Investing isn’t always straightforward; in the modern era, one of the most concerning risks and threats to investors around the world is the emergence of wash trades. Wash trades disguise the intent of sellers and buyers, allowing them to manipulate the market to their advantage. In order to make sure your investments are sound, it’s vital to have a better understanding of the risks associated with wash trades.
What Are Wash Trades?
At its core, a wash trade is pretty simple: it’s when someone buys and sells the same security without an economic purpose. This behavior is done to confuse onlookers and manipulate the markets, as well as the prices of securities.
- It is done to obfuscate the activity and intent of both the buyer and seller.
- It is often done in order to influence the price of securities.
- It is often done in order to increase the number of trades – and thus increase the fees.
- It is a fraudulent activity.
Why Are Wash Trades Dangerous?
Wash trades can be a major threat to investors for a few reasons. Firstly, it can significantly impact the price of a security, meaning that if you buy or sell at a price influcened by wash trading, you’re losing out. Additionally, such trades increase the fees of the marketplace as a whole, driving up the costs.
- It can distort the price of securities.
- It can lead to increased fees.
- It can discourage new investors.
- It can lead to losses for investors.
5. Solidus Labs Works to Keep Markets Fair, Transparent, and Responsible
Economies thrive when markets are open and economic activity is incentivized. But unchecked economic activity can breed corruption and disrupt the trust between market participants. That’s where Solidus Labs comes in.
Solidus Labs is leading the charge to make markets fair, transparent, and responsible by developing product solutions that enable institutions to constantly monitor their operations and reduce the risk of violation and manipulation. Using its proprietary real-time surveillance platform, Solidus Core, firms can detect suspicious activity and conduct investigations quickly. Solidus Core also can proactively monitor unstructured market data and detect emerging market risks.
- Solidus Labs provides a range of services to help clients stay compliant and meet regulatory requirements, such as:
- Real-time trade surveillance
- Activity monitoring and alerting
- Data analytics & data visualization
- Regulatory reporting
Solidus Labs is dedicated to helping solve fraud and delivering unparalleled transparency to the markets. Through its innovative technology, it’s helping to create a better, more balanced playing field by enabling market participants to make the fairest and most informed choices.
No one can deny the essential role that Decentralized Exchanges play in the cryptocurrency market. What Solidus Labs recently uncovered is an important reminder of the importance of monitoring these exchanges for activity that could potentially harm the market. Therefore, by exposing the vulnerability of these exchanges, Solidus Labs has shown us that while the advantages of blockchain-based smart contracts are immense, they also carry a certain level of unpredictability that must not be ignored.
