Wash trading

Wash trading means buying and selling the same asset with yourself, or with a colluding party, to create misleading activity. No real change of ownership happens, but the trades show up as volume, making a market look more liquid and popular than it is.

In crypto, wash trading has been used by exchanges to climb volume rankings, by token projects to attract listings and buyers, and by NFT traders to inflate the apparent sale prices of collections or to farm rewards from marketplaces that paid incentives for volume. Several academic and industry studies have estimated that a large share of reported volume on unregulated exchanges was fake at various points.

For investors, the lesson is to treat headline volume with suspicion, especially on little-known exchanges and tokens. Look at order-book depth, compare volume across reputable venues, and check whether holder counts and on-chain activity are consistent with the claimed trading. In regulated markets, wash trading is a form of market manipulation and is illegal.