We have identified $960 million worth of A-A wash trades since September 2020 in our sample of DEX liquidity pools. This method is likely preferred by entities seeking to avoid detection. In multi-party wash trading, the addresses of the liquidity provider(s) and the swapper(s) are different, but the addresses are controlled by the same entity. We have identified approximately $1.1 billion worth of multi-party wash trades since September 2020 in our sample of DEX liquidity pools. For example, 0x1 may act as the pool’s dominant liquidity provider while 0x2, 0x3 and 0x4 pretend to be distinct swappers, trading token one for token two (or vice versa) to drive up token two’s trading volume. Inflate the number of investors that appear to be buying or selling the token.
This is because, as we illustrated in part one of our Crypto Market Manipulation Report, DEX liquidity pools are often their token’s first listing venue. This means that a token deployer’s ability to either get their token listed on a centralized exchange or rug-pull their investors for profit depends upon their skill in attracting speculators to the liquidity pool on which their token is traded. How does DEX-based wash trading work? We find that many token deployers will resort to DEX-based wash trading to do so.
In A-A wash trading, a single cryptocurrency address (“0x1”) sits on both sides of the token swap. This means that 0x1 acts as both (a) the dominant liquidity provider in the pool and (b) the “swapper” exchanging token one for token two (or vice versa). Whenever these trades occur, no change in beneficial ownership takes place – and yet each swap manipulates the less-established token’s price and volume, creating an artificial market signal.