5 ms·

Crypto Wash Trading

64 points by ourmandave 4y ago

stevebmark 4y ago
Similar results found in 2021 https://www.sciencedirect.com/science/article/abs/pii/S1544612321000635 https://www.sciencedirect.com/science/article/abs/pii/S15446... This is why I believe the only way cryptocurrency can succeed is if you can't trade it for useful fiat currency. That will mostly remove the desire to manipulate them relative to a useful stable value.
- jeffreyrogers 4y ago
  They say that they don't see much evidence of wash trading on regulated exchanges so it seems regulation is good enough to solve a lot of these problems.
  - thefounder 4y ago
    Or wash trading on regulated exchanges is less obvious for obvious reasons. It's like saying they dont see pump&dump schemes on the stock market
    - sli 4y ago
      Or pump and dump schemes that happen on exchanges, which are frequently done right out in the open without any euphemistic language at all. I'm not sure why we trust exchanges to not simply lie to the public.
      - jeffreyrogers 4y ago
        If you have evidence of pump and dump schemes occurring that will hold up in court you will likely make a lot of money from whistleblower awards.
        thefounder 4y ago
        Pffff...some people like to live in a fantasy world. I guess it is healthier as you have less stress but make no mistake, the real world is different and uglier. Pump and dump schemes happen at all levels of the chain. Some are less obvious and even legal(i.e the banks just "support" the stock up to a certain level) but many are just plain dumb pump and dump (a la crypto style). Of course regulators issue "warnings" and in a best case scenario you may get a useless congresional hearing like you've got with the GME saga. I don't really think you should trust the regulators doing their job more than you should trust a crypto exchange or ICO owner. You have to do your due diligence or you get fu** in plain sight and nobody really cares. I like crypto because you know what you get(i.e no assurance). https://www.reuters.com/markets/us-regulator-warns-pump-and-dump-ipos-many-china-2022-11-17/ https://www.reuters.com/markets/us-regulator-warns-pump-and-...
    - RandomLensman 4y ago
      What reasons would that be?
- zemvpferreira 4y ago
  But what would you use crypto for, then? Any transaction you perform with your coins could be a proxy transaction for dollars; buy car with PretendCoin, sell car for USD. Why would anyone accept a currency that can't be traded for anything else?
loeg 4y ago
Seems to be the same paper as this preprint on arXiv from last August: https://arxiv.org/abs/2108.10984 https://arxiv.org/abs/2108.10984 Earlier discussion: https://news.ycombinator.com/item?id=29279146 https://news.ycombinator.com/item?id=29279146
ls15 4y ago
Create a crypto project, ideally a premined one, delegated PoS or so with outrageous performance claims. With non-premined PoW coins it is much harder. Ideally with a huge supply of tokens. Let's say 100,000,000,000 total supply. Form a foundation and talk to the media. Sell some at a sub-cent price during multiple ICO rounds, but make sure to keep 70-90% (tokens for team, advisors, runnning costs, token burns, security claims that are baked into the protocol and whatever other reason you can come up with). Sell some to yourself for free. Use money from the first round to pay for marketing and exchange listing - yes, most projects other than Bitcoin, Ethereum or Monero need to pay to be listed, even though exchanges make money from trading fees. Ideally also run your own exchange, which gives you more creative freedom and may save cost. Talk to the media again and spam all crypto communities. Use the tokens that you sold to yourself for wash trading on multiple exchanges. Since you sell to yourself, your main costs are trading fees. Use ICO money for that and for buying some tokens from others. Market price is the latest price that someone paid for the token. Market capitalization is Market Price x Circulating Supply. Increase market price by wash trading at higher prices, you control the price, since you own the most tokens. Some ICO customers will sell their tokens back to you, but the majority of them will wait for much higher prices. Spread rumors about possible 1,000% price increases when the token gets adopted by the masses. Some new buyers will obtain some of your tokens as your token is rising on websites like coinmarketcap.com because of the rising market capitalization. Do more marketing, spread memes and rumors about partnerships with FAANGs and governments, as well as potential 10,000% price increases. Monitor the price. Wash trade higher. Monitor price and order books. Once the price is high enough, start to sell more to other buyers. When the orderbooks are full of other people, dump more and let it cool down afterwards. Repeat until you are rich enough or until people aren't buying the token anymore. Exit.
- isitmadeofglass 4y ago
  You’d think that this was the way to carry out a typical crypto scam yes. But then we have cases where the shell cracks like FTX and we can see inside and it turns out the scams are completely devoid of any sophistication. FTT wasn’t a clever pump’n’dump scheme, it was just straight up not backed because user funds where working to cover Alamedas leveraged positions.
anonymoushn 4y ago
The methodology makes no sense. Our quoter currently quotes approximately the same dollar amount at all the time. If a taker takes all of our size at a level, as they do tens of thousands of times per day, the resulting trade sizes will not follow Benford's law. Another dynamic is that many trades will be a bot trading against a stale quote. For whatever reason, some bots are configured to do this gradually in fixed-size chunks, which will also produce trade data that does not follow Benford's law. The authors create a benchmark rate of "automated trading" (i.e. deviation from Benford's law) at regulated exchanges and attempt to calculate the rate of wash trading at other exchanges by comparing the deviation from Benford's law to the deviation at regulated exchanges. Even if all of these exchanges would onboard every automated trading firm from anywhere in the world with directors and UBOs with any combination of citizenships, this methodology *still* would not work at all, because automated trading systems care about prices after fees, and Kraken's lowest fees are 0bps maker/10bps taker, while Gate's are -1.5bps maker/2bps taker. Another way of saying this is that Kraken has a "net fee rate" of 10bps and a "minimum spread" of 20bps (wow!) plus the price increment, while Gate has a "net fee rate" of 0.5bps and a "minimum spread" of 4bps plus the price increment. Expecting similar distributions of trades in these two conditions is extremely unreasonable, and one wonders if the fine authors consulted anyone in industry before publishing.
- anonymoushn 4y ago
  In a comment[0] on the previous discussion of this paper, arberx posted a slightly older analysis[1]. The techniques in that analysis seem much more useful for identifying exchanges with huge amounts of fake volume. Identifying wash trading at more legitimate-looking exchanges is a difficult problem though. [0]: https://news.ycombinator.com/item?id=29279550 https://news.ycombinator.com/item?id=29279550 [1]: https://static.bitwiseinvestments.com/Research/Bitwise-Asset-Management-Analysis-of-Real-Bitcoin-Trade-Volume.pdf https://static.bitwiseinvestments.com/Research/Bitwise-Asset...
- europeanguy 4y ago
  I completely agree with this comment. This seems like a paper published by someone who knows some mathematical techniques but has no domain knowledge.

64 points by ourmandave 4y ago

Similar results found in 2021 https://www.sciencedirect.com/science/article/abs/pii/S1544612321000635 https://www.sciencedirect.com/science/article/abs/pii/S15446... This is why I believe the only way cryptocurrency can succeed is if you can't trade it for useful fiat currency. That will mostly remove the desire to manipulate them relative to a useful stable value.

jeffreyrogers 4y ago
They say that they don't see much evidence of wash trading on regulated exchanges so it seems regulation is good enough to solve a lot of these problems.
- thefounder 4y ago
  Or wash trading on regulated exchanges is less obvious for obvious reasons. It's like saying they dont see pump&dump schemes on the stock market
  - sli 4y ago
    Or pump and dump schemes that happen on exchanges, which are frequently done right out in the open without any euphemistic language at all. I'm not sure why we trust exchanges to not simply lie to the public.
    - jeffreyrogers 4y ago
      If you have evidence of pump and dump schemes occurring that will hold up in court you will likely make a lot of money from whistleblower awards.
      - thefounder 4y ago
        Pffff...some people like to live in a fantasy world. I guess it is healthier as you have less stress but make no mistake, the real world is different and uglier. Pump and dump schemes happen at all levels of the chain. Some are less obvious and even legal(i.e the banks just "support" the stock up to a certain level) but many are just plain dumb pump and dump (a la crypto style). Of course regulators issue "warnings" and in a best case scenario you may get a useless congresional hearing like you've got with the GME saga. I don't really think you should trust the regulators doing their job more than you should trust a crypto exchange or ICO owner. You have to do your due diligence or you get fu** in plain sight and nobody really cares. I like crypto because you know what you get(i.e no assurance). https://www.reuters.com/markets/us-regulator-warns-pump-and-dump-ipos-many-china-2022-11-17/ https://www.reuters.com/markets/us-regulator-warns-pump-and-...
  - RandomLensman 4y ago
    What reasons would that be?
zemvpferreira 4y ago
But what would you use crypto for, then? Any transaction you perform with your coins could be a proxy transaction for dollars; buy car with PretendCoin, sell car for USD. Why would anyone accept a currency that can't be traded for anything else?

loeg 4y ago

Seems to be the same paper as this preprint on arXiv from last August: https://arxiv.org/abs/2108.10984 https://arxiv.org/abs/2108.10984 Earlier discussion: https://news.ycombinator.com/item?id=29279146 https://news.ycombinator.com/item?id=29279146

ls15 4y ago

Create a crypto project, ideally a premined one, delegated PoS or so with outrageous performance claims. With non-premined PoW coins it is much harder. Ideally with a huge supply of tokens. Let's say 100,000,000,000 total supply. Form a foundation and talk to the media. Sell some at a sub-cent price during multiple ICO rounds, but make sure to keep 70-90% (tokens for team, advisors, runnning costs, token burns, security claims that are baked into the protocol and whatever other reason you can come up with). Sell some to yourself for free. Use money from the first round to pay for marketing and exchange listing - yes, most projects other than Bitcoin, Ethereum or Monero need to pay to be listed, even though exchanges make money from trading fees. Ideally also run your own exchange, which gives you more creative freedom and may save cost. Talk to the media again and spam all crypto communities. Use the tokens that you sold to yourself for wash trading on multiple exchanges. Since you sell to yourself, your main costs are trading fees. Use ICO money for that and for buying some tokens from others. Market price is the latest price that someone paid for the token. Market capitalization is Market Price x Circulating Supply. Increase market price by wash trading at higher prices, you control the price, since you own the most tokens. Some ICO customers will sell their tokens back to you, but the majority of them will wait for much higher prices. Spread rumors about possible 1,000% price increases when the token gets adopted by the masses. Some new buyers will obtain some of your tokens as your token is rising on websites like coinmarketcap.com because of the rising market capitalization. Do more marketing, spread memes and rumors about partnerships with FAANGs and governments, as well as potential 10,000% price increases. Monitor the price. Wash trade higher. Monitor price and order books. Once the price is high enough, start to sell more to other buyers. When the orderbooks are full of other people, dump more and let it cool down afterwards. Repeat until you are rich enough or until people aren't buying the token anymore. Exit.

isitmadeofglass 4y ago
You’d think that this was the way to carry out a typical crypto scam yes. But then we have cases where the shell cracks like FTX and we can see inside and it turns out the scams are completely devoid of any sophistication. FTT wasn’t a clever pump’n’dump scheme, it was just straight up not backed because user funds where working to cover Alamedas leveraged positions.

anonymoushn 4y ago

The methodology makes no sense. Our quoter currently quotes approximately the same dollar amount at all the time. If a taker takes all of our size at a level, as they do tens of thousands of times per day, the resulting trade sizes will not follow Benford's law. Another dynamic is that many trades will be a bot trading against a stale quote. For whatever reason, some bots are configured to do this gradually in fixed-size chunks, which will also produce trade data that does not follow Benford's law. The authors create a benchmark rate of "automated trading" (i.e. deviation from Benford's law) at regulated exchanges and attempt to calculate the rate of wash trading at other exchanges by comparing the deviation from Benford's law to the deviation at regulated exchanges. Even if all of these exchanges would onboard every automated trading firm from anywhere in the world with directors and UBOs with any combination of citizenships, this methodology *still* would not work at all, because automated trading systems care about prices after fees, and Kraken's lowest fees are 0bps maker/10bps taker, while Gate's are -1.5bps maker/2bps taker. Another way of saying this is that Kraken has a "net fee rate" of 10bps and a "minimum spread" of 20bps (wow!) plus the price increment, while Gate has a "net fee rate" of 0.5bps and a "minimum spread" of 4bps plus the price increment. Expecting similar distributions of trades in these two conditions is extremely unreasonable, and one wonders if the fine authors consulted anyone in industry before publishing.

anonymoushn 4y ago
In a comment[0] on the previous discussion of this paper, arberx posted a slightly older analysis[1]. The techniques in that analysis seem much more useful for identifying exchanges with huge amounts of fake volume. Identifying wash trading at more legitimate-looking exchanges is a difficult problem though. [0]: https://news.ycombinator.com/item?id=29279550 https://news.ycombinator.com/item?id=29279550 [1]: https://static.bitwiseinvestments.com/Research/Bitwise-Asset-Management-Analysis-of-Real-Bitcoin-Trade-Volume.pdf https://static.bitwiseinvestments.com/Research/Bitwise-Asset...
europeanguy 4y ago
I completely agree with this comment. This seems like a paper published by someone who knows some mathematical techniques but has no domain knowledge.