Monthly wash trading volume exploded from $20 million in January to nearly $150 million in April 2024, driven by incentive activities and attempts to manipulate exchange rankings.
Token launches surged to over 400,000 on Ethereum, Base, and BSC networks, with 3.8% associated with suspected pump-and-dump schemes exploiting automatic ranking systems and trading platforms.
Average manipulative wallets participate in 2 DEX pools with 129 fake transactions worth $30,000, while extreme cases show single addresses generating $17.3 million through 54,684 wash trades.
Chainalysis reveals DeFi wash trading surged to $150M monthly in 2024. Discover how fake transactions, pump-and-dump schemes, and airdrop manipulation threaten blockchain integrity and what heuristic detection methods reveal.
DETECTING FAKE TRANSACTIONS IN DEFI: HEURISTIC CHALLENGES AND ON-CHAIN MARKET MANIPULATION COMPLEXITY
Chainalysis’s 2024 report on on-chain market manipulation highlights the role of heuristic methods in identifying fake transactions, which often involve repeated buying and selling of assets without any real change in ownership or market exposure. These patterns typically fail to reflect genuine market activity.
While much of the academic research on fake transactions has focused on centralized exchanges, many of these platforms reportedly inflate trading volumes to boost rankings in spot markets, contract volumes, or derivatives.
Although gas fees on decentralized platforms make manipulation more costly, such practices still persist. The widespread use of pseudonymous addresses, limited regulatory oversight, and decentralized infrastructure further complicate the detection of manipulative behaviors in the evolving crypto landscape.
Heuristic Detection of On-Chain Market Manipulation
Heuristic methods are used as the mainstream method for detecting on-chain market manipulation, focusing on identifying fake transactions that do not change asset ownership.
They can be based on behavioral signals (such as repeated high-overlapping trading patterns, abnormal liquidity), rather than intentions.
Although they cannot independently prove the existence of manipulation, they further analyze and provide off-chain data such as centralized exchange logs or IP records.
On-Chain Market Manipulation by Centralized Exchanges: Inflated Trading Volumes Through Fake Transactions
The phenomenon of centralized exchanges manipulating spot, contract, and derivative trading volumes is well known in the industry, and such behavior misleads traders about the liquidity of the exchange.
According to Bitwise’s 2019 report, “fake exchanges” often exhibit abnormal trading patterns – such as consistent trading frequency, fixed spreads, and price fluctuations that defy market logic – which indicates deliberate false trading.
Bitwise’s 2019 report also mentioned that about 95% of spot trading volume is manipulated, which also highlights the current situation of on-chain market manipulation.
TRACKING ON-CHAIN MARKET MANIPULATION: MONTHLY WASH TRADE VOLUME SURGED IN EARLY 2024
According to Chainalysis data, wash trading volume increased significantly in 2024.
Image source: Chainalysis 2024
As can be seen from the data chart, the monthly wash trading volume soared from US$20 million in January to nearly US$150 million in April, and then gradually declined and stabilized at around US$50 million to US$60 million from August to December.
This shows that false transactions appeared in the first and second quarters, and the motivation may come from incentive activities or attempts to exaggerate the exchange’s own market activities on ranking websites.
Another level reflects the existence of On-Chain market manipulation strategies before regulatory scrutiny is strengthened or incentives are weakened.
ANALYZING ON-CHAIN MARKET MANIPULATION: WASH TRADING BEHAVIOR ACROSS INDIVIDUAL WALLETS ON DEXS
Chainalysis provides data on wash trading activities from multiple wallets.
From the data, the average single address participated in 2 DEX pools and initiated 129 fake transactions, manipulating the total transaction volume of about $30,000.
Image source: Chainalysis 2024
The medium address only conducted 10 wash transactions, worth $651; in the extreme case, one address interacted with 241 DEX pools and generated more than $17.3 million in wash volume through 54,684 transactions.
This shows that most wash transactions are low and scattered, and a few highly active addresses drive most on-chain market manipulation – which is an inevitable product of the anonymity and permissionless nature of the blockchain market.
ON-CHAIN MARKET MANIPULATION THROUGH INCENTIVE STRUCTURES: LIQUIDITY MINING AND AIRDROPS
Mechanisms such as liquidity mining and airdrops reward users based on trading activity, but can inadvertently encourage fake trading and wash trading.
Malicious airdrop actors exploit these mechanisms to increase trading volume through repeated self-trading, with the ultimate goal of simply washing tokens or qualifying for airdrops.
This behavior undermines the fairness of the protocol, distorts performance metrics, and challenges the integrity of the DeFi ecosystem where token distribution is tied to on-chain activity.
ZJK and KOGE Flash Crash on Binance Sparks On-Chain Market Manipulation Concerns
Binance evolved from TGE to Alpha, and points are calculated based on “trading volume × fund deposit amount”.
Image source: Binance
Since the official revision in June, LP can also receive extra points, which also leads to a large amount of false trading volume by arbitrageurs and airdroppers in a short period of time.
In order to earn the maximum capital effect, the volume-boosting people often choose ZKJ-KOGE liquidity pool to reduce wear and tear. However, the false volume of transactions conceals the real buying, and once the big players withdraw from the pool, it will become a domino effect.
TOKEN SURGE RAISES ON-CHAIN MARKET MANIPULATION CONCERNS AMID EXPLOSIVE GROWTH IN NEW LAUNCHES
The number of tokens issued on the Ethereum, Base and BSC networks has soared to more than 400,000, a significant increase compared to the average monthly issuance in 2022-2024.
However, the funds in the market have not increased significantly, which also makes people suspect that the trading volume of the currency is the result of On-Chain Market Manipulation .
Image source: Chainalysis 2024
The period of rapid token issuance is similar to the explosion of ICO financing projects in 2015, which is full of high-risk false project information (false transactions, pump transactions and wash transactions).
These false information are designed to take advantage of automatic token ranking systems or incentivize trading platforms, which also means that we need more intuitive indicators and tools to judge false content information.
RISING RISKS OF ON-CHAIN MARKET MANIPULATION: PUMP-AND-DUMP SCHEMES PERSIST ACROSS TOKEN LAUNCHES
The share of tokens associated with suspected pump-and-dump schemes has steadily increased, reaching nearly 3.8% of all newly launched tokens by 2024.
Image source: Chainalysis 2024
This trend highlights an ongoing threat of on-chain market manipulation, where malicious actors artificially inflate token prices through hype and false demand before dumping assets on unsuspecting investors.
CONFRONTING THE THREAT OF ON-CHAIN MARKET MANIPULATION IN THE DEFI ECOSYSTEM
The rise of on-chain market manipulation poses a growing threat to the integrity and transparency of the DeFi ecosystem.
From wash trading and wash trading to price gouging scams and incentive abuse through liquidity mining and airdrops, malicious actors continue to exploit the openness of blockchain markets.
Chainalysis data reveals worrying trends – billions of dollars in manipulated trading volume, large-scale token issuance with suspicious activities, and concentrated manipulation by a small number of wallets.
This highlights the urgent need for improved on-chain monitoring tools, heuristic-based detection systems, and stronger regulatory frameworks.
〈CoinRank Exclusive: Unmasking On-Chain Market Manipulation: Detecting Wash Trading and Pump-And-Dump Schemes in DeFi〉這篇文章最早發佈於《CoinRank》。
