Chainalysis: Wash Trading Suspected to Account for Billions in Trading Volume
The Chainalysis 2025 report has introduced a unique approach in detecting market manipulation through analyzing on-chain data, especially in decentralized finance (DeFi) due to its transparency. The methodology focuses on patterns of behavior rather than intent, serving as a starting point for deeper investigations when combined with off-chain data. Market manipulation, such as wash trading and pump-and-dump schemes, remains prevalent in the crypto space.
Wash trading involves artificially inflating trading volume by repetitively buying and selling the same asset, creating a false perception of demand. On the other hand, pump-and-dump schemes entice unsuspecting investors by driving up the price of an asset through coordinated hype, only for insiders to sell off and leave investors with significant losses. Identifying these patterns is crucial to understanding how market manipulation unfolds in cryptocurrency markets.
The research focuses on wash trading, where near-simultaneous buying and selling of an asset occurs without any actual beneficial changes. In traditional markets, identifying wash trading poses challenges due to varied collusion strategies. In the crypto space, factors like pseudonymity and lack of comprehensive regulatory oversight add to the complexity.
The study primarily examined fungible tokens like ERC-20 and BEP-20 tokens, facing obstacles in pinpointing wash trading, especially in AMM-based decentralized exchanges. While MEV bots and arbitragers conduct trades in short intervals, distinguishing wash trades becomes a challenge, especially in automated market-making settings.
Using specific heuristics, potential wash trading patterns were identified by analyzing matched buy and sell transactions across addresses. The research pinpointed total suspected wash trading volumes of around $704 million in 2024, accounting for a mere fraction of the total DEX trade volume. Notably, certain DEX pools were linked to higher volumes of wash trading activity throughout the year, suggesting concentration in specific pools and a limited number of actors driving the activity.
Furthermore, the analysis revealed 23,436 unique addresses exhibiting patterns consistent with wash trading criteria, engaging with multiple DEX pools. The data showed addresses trading with multiple pools comprising a significant portion of the total addresses identified.
Overall, the report sheds light on the prevalence of wash trading and market manipulation in the crypto space, emphasizing the need for continued vigilance and analysis to safeguard the integrity of digital asset markets. Identifying suspicious patterns is crucial in understanding and combating such practices to ensure fair and transparent trading environments for all participants.
