Increased activity: what is a fictitious transaction in the cryptocurrency market
Date: 2024-06-28 Author: Henry Casey Categories: BUSINESS
Wham transactions in the cryptocurrency market are frequent purchases and sales of the same asset to artificially increase trading volume and create the appearance of increased interest in cryptocurrency.
A wash trade is a repeated purchase and subsequent sale of the same crypto asset. At first glance, this may seem pointless, because constant operations will lead to losses. However, the main purpose of such actions is to increase trading volume. The growth of this indicator creates the appearance of increased interest in a certain cryptocurrency.
Mechanisms for implementing fictitious transactions
To carry out such schemes, special trading robots are often used, which are based on mathematical algorithms. These transactions can be carried out either by conspiracy or by one person. Typically, wash trades are used for small-cap cryptocurrencies to increase their visibility. In some cases, they are held to receive rewards on DeFi platforms that reward users for high trading volume.
The term “wash trading” (from the English wash trading) is often found on the Internet and is essentially no different from a fictitious transaction. This is a deceptive way of creating the illusion of high trading volume.
Volume of fictitious transactions and their impact
According to a report from Solidus Labs, a company specializing in security in the crypto industry, the volume of fictitious transactions in the DeFi segment from 2020 to 2023 amounted to a minimum estimate of $2 billion. In 2019, The Block claimed that 86% of transactions in the cryptocurrency market were fictitious. This problem remains relevant to this day.
One of the most striking examples of fictitious transactions was the report of The Wall Street Journal (WSJ) on the activities of the Binance cryptocurrency exchange. The report mentioned cases of wash trading on the platform, where VIP clients drove monthly volumes up to $100 million. The WSJ claims that Binance encourages such activity, and up to 2/3 of the exchange’s total trading volume comes from such transactions.
Binance's Actions to Combat Market Manipulation
In 2022, Binance created a special oversight team aimed at identifying market manipulation. However, according to the WSJ, despite the team's recommendations to get rid of hundreds of users, including crypto company DWF Labs, for manipulating token prices, Binance has not taken appropriate action. On the contrary, the head of the supervision team was fired.
Binance and DWF Labs response to accusations
Binance confirmed it has a strict market surveillance program and said it has kicked out about 355,000 users for rule violations over the past three years, with a total transaction volume of more than $2.5 trillion. The exchange said it is committed to neutral and unbiased investigative work to promote healthy competition and protect users from market manipulation.
DWF Labs also denied the allegations, saying it operates to the highest standards of inclusion, openness and ethics, and remains committed to its partners.
Fictitious transactions are operations involving the purchase and almost simultaneous sale of a crypto asset, carried out with the aim of increasing trading volume. Such actions may be aimed at creating the appearance of activity in cryptocurrency or receiving rewards from crypto platforms. Although wash trading continues to remain a legal gray area, cryptocurrency exchanges regularly announce their fight against wash trading.
