Identifying and Measuring Wash Trading on Decentralized Exchanges

Summary

This document examines how to identify and measure wash trading on two early Ethereum decentralized exchanges that used limit order books: IDEX and EtherDelta. It looks for accounts and trading structures that fit legal definitions of wash trading, including self-trading, pairs of accounts, and more complex arrangements. The study reports a lower-bound estimate of the accounts and structures involved, along with an estimated wash-trading volume equivalent to 159 million U.S. dollars.

The authors report that more than 30% of traded tokens on each exchange experienced wash trading, and that on EtherDelta 10% of tokens were almost exclusively wash traded. They present the findings as evidence of manipulation risks in decentralized markets and a case for countermeasures suited to those systems. The figures are specific to the exchanges and period studied, which the excerpt does not identify. Because the account count is described as a lower bound, the observed activity may not capture all wash trading. The data is said to be available for further research.

Key ideas

• The study identifies potential wash trading through self-trades and linked account structures on two Ethereum exchanges.
• It estimates a lower bound for the accounts and trading arrangements that meet legal definitions.
• The reported wash-trading volume is equivalent to 159 million U.S. dollars.
• More than 30% of traded tokens on each exchange were affected, according to the study.
• The findings concern two specific limit order book exchanges and may not represent all decentralized markets.

Tags

# Detecting and Quantifying Wash Trading on Decentralized Cryptocurrency Exchanges


# Detecting and Quantifying Wash Trading on Decentralized Cryptocurrency Exchanges









Cryptoassets such as cryptocurrencies and tokens are increasingly traded on decentralized exchanges. The advantage for users is that the funds are not in custody of a centralized external entity. However, these exchanges are prone to manipulative behavior. In this paper, we illustrate how wash trading activity can be identified on two of the first popular limit order book-based decentralized exchanges on the Ethereum blockchain, IDEX and EtherDelta. We identify a lower bound of accounts and trading structures that meet the legal definitions of wash trading, discovering that they are responsible for a wash trading volume in equivalent of 159 million U.S. Dollars. While self-trades and two-account structures are predominant, complex forms also occur. We quantify these activities, finding that on both exchanges, more than 30\% of all traded tokens have been subject to wash trading activity. On EtherDelta, 10% of the tokens have almost exclusively been wash traded. All data is made available for future research. Our findings underpin the need for countermeasures that are applicable in decentralized systems.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.