The crypto market offers opportunities for innovation and financial gains but has its traps, especially regarding market manipulation.
Practices like wash trading—where trades are made to inflate trading volumes artificially—can deceive investors and create an illusion of liquidity. Even if this boosts the price and visibility of a token for a short time, the long-term effect is often damaging, not just to projects but to the entire crypto ecosystem.
Recently, we had the opportunity to speak with industry experts, including the team of Yellow Capital and the COO Marvin Fangre, to understand the true impact of these practices and why ethical market making is essential for sustainable growth.
What is Wash Trading and Why is it Harmful?
Wash trading involves faking buy and sell orders in the order book, creating a false appearance for a token. The manipulative practice creates trading volumes, making a token seem more popular or liquid than it really is. According to the Yellow Capital team, which has a long-standing commitment to ethical market making, this illusion draws in investors who believe they are buying into a high-demand asset, only to find out later that the real market activity is far less robust.
Risks of Wash Trading:
– False Market Signals: When making decisions, investors depend of volume and liquidity indicators. Wash trading adjust these metrics, pushing investors into making decisions based on false data.
– Price Instability: Once the wash trading stops, the price and volume collapse, and follows a dump that leaves investors holding the bag.
– Reputation Damage: As the Yellow Capital team noted, projects that rely on wash trading may gain short-term visibility but often lose credibility when they are exposed.
The Consequences of Fake Trading Volume Gotbit and ZM Quant
The most recent and notorious market manipulation schemes, according to an FBI investigation, Gotbit and ZM Quant provided “market-manipulation-as-a-service,” using bots to inflate trading volumes for more than 60 different altcoins.Tokens like Saitama saw their market values skyrocket based on fake volumes, reaching over $7.5 billion before the scheme unraveled. Price collapsed shortly after manipulations were exposed, leaving investors with huge losses. U.S. authorities seized over $25 million in crypto and shut down the wash trading bots involved in the scheme.
Pump-and-Dump Schemes
Another example is when market makers involved in pumping the price of a token up before dumping their holdings at the peak price. Investors, attracted in by the fake high trading volumes, saw their investments lose value almost overnight as the manipulators cashed out. This kind of pump-and-dump strategy not only destroys investor trust but also cripples the future of a token.
The Broader Impact on the Crypto Market
Wash trading harms not only the token community but also the reputation of the whole crypto market.
Marving Fangre comments, “With the rising number of tokens inflating trading volumes to appear more legitimate, it becomes complicated for serious projects to establish themselves. This environment is completely toxic and destroys the trust that prevents institutional investors and undermines the credibility of legit projects.”
At a time when regulatory bodies like the SEC and FBI are focused on crypto market manipulation, the consequences of unethical behavior are becoming extreme. As regulatory scrutiny increases, projects that use wash trading are likely to face legal implications alongside reputational damage.
The Ethical Approach: Real Liquidity and Long-Term Success The alternative to manipulation for projects looking to build sustainable success is clear: focus on real liquidity, transparent practices, and genuine market engagement. Market makers that prioritize ethical behavior play a key role in fostering healthy, stable markets. Rather than relying on inflated volume to boost a token’s profile, ethical market makers work to ensure real demandsupports the token’s price and trading activity. By building organic liquidity
and keeping spreads tight, these market makers help projects earn investor trust, a vital asset in the volatile crypto space.
The Path Forward for Token Projects and Investors
As the crypto industry matures, transparency and ethics are becoming more important than ever. Projects that want to attract long-term investors need to focus on building real, organic demand for their tokens rather than inflating trading volumes through manipulation. Working with ethical market makers, like Yellow Capital, who understand the importance of genuine liquidity, is crucial for projects that want to stand out in an increasingly competitive market. By focusing on transparent and sustainable practices, projects can ensure that they are building a solid foundation for future growth.
Alternatives to Wash Trading: How to Increase Volume the Right Way Instead of resorting to market manipulation, token projects can increase trading volumes through ethical strategies that foster organic growth and build long-term trust with investors. Here are some approaches that genuinely boost a token’s volume:
1. Engage Your Community
● Strong community engagement drives organic demand. Projects with active communities have higher trading volumes because followers and believers are likelier to buy and trade the token. Hosting AMAs (Ask Me Anything) sessions, providing regular updates, and rewarding long-term supporters can all increase engagement.
● Why it works: An engaged community supports your project and spreads the word, bringing in new traders. Just make sure that it’s not that easy to get the tokens as rewards because it will increase the sell pressure.
1. Provide Real Utility
● Tokens that offer real-world utility or compelling use cases naturally attract more attention and trading volume. Whether it’s a DeFi token that provides staking rewards or a utility token that grants access to unique features on a platform, making your token useful will drive more organic trades.
● Why it works: When a token serves a genuine purpose beyond speculation, traders are more likely to use it in day-to-day activities, increasing liquidity and volume. 1. Partnerships and Collaborations
● Establishing partnerships with other crypto industry projects can give your token more exposure and use cases, increasing its market visibility and trading volume. Collaborating with a well-known web3 brand can attract more liquidity to your token.
● Why it works: A strong network of partnerships helps integrate your token into the broader crypto ecosystem and get more public exposure, driving more demand. 1. Smart Exchange Listings
● Use a smart approach to your token exchange listing. More exchanges—can increase visibility and trading volume. But it might also hurt if you don’t have enough traders. It will drain your treasure due to the listing fees and trading support. Sometimes, smaller exchanges might be more beneficial for your strategy in the beginning because they
provide perfect activity and visibility. Make sure that the size and the locations of the exchange you chose for listing are relevant to your business goals.
● Why it works: The more relevant audience has access to your token, the greater its potential trading volume on exchange platforms.
1. Marketing and Education
● Strong marketing campaigns and educational content help potential traders understand the value of your project. Creating strong narrative, collaborations with influencers, hosting webinars, publishing thought leadership content, and creating smart how-to guides can make your token more accessible to a broader audience.
● Why it works: When people understand the potential and utility of your token, they’re more likely to trade it, increasing overall volume.
Projects that prioritize these ethical methods and choose to work with trusted market makers tend to see long-term volume growth without damaging their reputation or the market.
Ethics Will Define the Future of Crypto
Wash trading and other forms of market manipulation may offer short-term gains, but the long-term costs—lost investor confidence, reputational damage, and regulatory scrutiny—are simply too high. As the crypto market matures, trust and transparency will define which projects succeed and which are left behind.
By partnering with ethical market makers, like Yellow Capital, that focus on providing real liquidity and avoiding manipulation, token projects can build sustainable growth and secure their place in the future of the crypto ecosystem.
