Wash trading gone wrong – how a $100M/day crypto exchange bankrupted itself
blog.everstrike.io
blog.everstrike.io
We found 95% of bitcoin trading volume at the time was fake: https://www.wsj.com/articles/most-bitcoin-trading-faked-by-u...
It's far from uniform, looks plenty ragged and random to me. Though I can't read the axes so I may be misinterpreting it.
[1] There was data back then too, it just wasn't received.
1) "exchange" doing shit that would put you directly in jail in any professional finance context
2) people with ~$0 money participating in the most speculative investment schemes
3) "exchange" having minimal handle on what they're doing, reverse scalping as part of 1) and not realizing this costs money (see Knight Capital)
4) "exchange" just ghosting with the 2) money when faced with negative pnl
Future of finance, amirite?
So, the more interesting question to me is how much money BaseFEX actually made from this scam before they turned it off.
> It's a cautionary tale for any crypto exchange looking to get ahead by faking volume
Is that news outlet openly writing for fraudsters? What's their next article, 5 best ways to open an illegal casino?
I think comparing this to code optimization is a category error. It'd be closer to saying "insider trading gone wrong". The opposite of catastrophic failure here is the successful execution of a crime.
If they led with "BaseFEX accidentally bankrupts itself with wash trading scheme", the rest of the content might land a bit better.
The fact that it's hosted on the blog of an options trading product and the statement that the post is "a solid guide for anyone who knows a bit of coding, and wants to take advantage of shady crypto exchanges" also plays a part in the weirdness of the framing, IMO.
Overall, while interesting, it's a mess of a post.
The issue is not really the specific word used. The issue is the overall framing and the ambiguity that the framing introduces.
Now imagine the exchange didn’t bankrupt itself and successfully kept these trades under the radar and then went on to become a popular product.
Some time later, the government catches wind and begins an investigation.
Imagine how odd a story about this would be if framed as: “The dos and don’ts of wash trading”. With content like “do make sure you don’t fall prey to smart Python programmers” and “don’t get caught”.
It’d be a lot weirder than “Popular exchange in trouble after the feds discovered evidence of early wash trading”.
If the content and framing worked for you, great. But we’ll have to agree to disagree about its effectiveness.
I just used "wrong", not specifically with regards to ethics. Wash trading is also dangerous and illegal.
The author comes off sounding like a sociopath.
It simply implies that someone was harmed when that wasn’t the intention.
Thus, it has “gone wrong”.
I would be surprised if most people trying to do some semblance of a robbery on a financial institution actually believe they are harming others. If it goes cleanly, who got “hurt”? A bunch of rich people? Insurance?
I think that most people who are stealing from others probably go to great lengths to contort their thinking such that it makes their theft OK in some way.
If you're engaging in fraud or theft, you are undeniably intending to harm others. Making excuses such as "they can afford it" is not claiming there is no harm, it's claiming that the harm is justified.
Enough with the double standards.
The only ones who can commit "sins" and still hold any moral high ground are "Sin Eaters", but they don't do those things for any personal benefit but rather to correct improper benefits other have received or seek to receive.
The rest of us are just selfish hypocritical trash that should either change our ways or stfu.
> Bertyar88 never managed to withdraw his funds - his account never got unbanned, and his withdrawal was never processed.
> However, he can at least comfort himself with the fact that he single-handedly managed to take down a $100M volume/day crypto exchange - with just $1,000 in savings, and 1,000 lines of Python.
Given a choice between $1000 net worth or $0 and a quirky story, I'll take the cash please.
Here's a $1098 refrigerator: https://www.homedepot.com/p/GE-25-3-cu-ft-Side-by-Side-Refri...
Lowes.com is good tho
The "best seller" refrigerator goes for $1,500. Granted, that is probably more of "model we would most like to sell", but still gives some insight to what the store thinks a reasonable price point for a "typical" unit is.
Unlesd I set the app to sort by price, there are 20 non-sponsered units before one that is below $1k.
Sure, it is not the low end of the market but $1000 is well within the range of prices for refrigerators.
Welcome to inflation.
>Bertyar88 is your average Eastern European basement dweller - unemployed, and with $1,000 in his account
In a strange twist I ended up doing some contract work for OKEx a few years later and was able to confirm some of the details about what they were doing on their end that led to the bad trades.
An exchange that otherwise seems legit does a mildly dubious thing at some small risk. Someone notices the slightly dubious things and finds a way to take advantage, risking a small amount of money to test their theory. They make an early withdrawal of their small winnings. The exchange notices that they lost a trivial amount of money, but are exposed to large future losses and decides to stop the bleeding by stopping the dubious thing, and allows themselves to fold up gracefully. Though they weren’t gracious enough to let the person withdraw their funds in the end. Cheap, valuable lessons learned all around.
I remember having a conversation with a cryptothusiast who said to me "If it's on chain, it's fair game". I had to have the "no dude, we have laws about things like market abuse. You might not know about them, but that doesn't mean they don't exist..." chat
Personally I say: let them learn the lessons the hard way, we can all stand back and perhaps learn something interesting. See it as an economic sandbox.
What matters is if it’s legal where you live and travel. And whether any of those places have extradition treaties.
On the wash trading I don't see any misrepresentation so long as the trades are actually happening.
You know this is a crime, right? I mean, everyone's international and anonymous so it has the same relationship to law enforcement as a backstreet dice game, but they did actually defraud this guy.
Seems like an unnecessary burn
Seems like theft -- was Bertyar88 doing something wrong here?
But it all break down in exchanges where you just own a balance on an account, rather than actual cryptocurrency secured by your private keys as they are meant to be owned.
Nostr is using it intensively for "zapping" micropayments in BTC to others. Anyways, plenty other coins exist too without high fees, and plenty of people use DEX'es where they remain firmly in control of their money with their own wallets.
If the domain changes hands, I don't think they'll approve the removal request unless the new owner can demonstrate that they own the previous contents of the domain as well. You can't send DMCA take down request for content you don't own, right? But I think it's up to the Internet Archive to decide, and they do have DMCA exemption for some class of contents.
https://help.archive.org/help/how-do-i-request-to-remove-som...
> Faking volume allowed the site to climb in the rankings on these sites, which exposed it to a greater audience of people, and, ultimately, more customers. Because the site had large volume numbers, potential customers immediately thought that it was legitimate.
It makes me wonder what is happening right now in the AI hype cycle, specifically with regards to faking legitimacy, that we'll look back on as being simple manipulation in 1-2 years time
Crypto is a holy grail for scammers, fraudsters, and conmen. You can "work" marks that live in an entirely different hemisphere, with no cut taken by whoever would normally get the money to you, the market is chock full of fools, by the very nature of the complete lack of utility of crypto so it's predominantly "true believers" who are obscenely gullible, have been scammed like three times before, and still will DM random people on instagram to get "in" on "the next big thing".
Even Casinos aren't allowed to put their thumbs on the scales this overtly.
The most basic form of this is the "pump and dump" but there are a lot of others. In the crypto world it seems wash trading backwards and forwards to generate volume and inflate perception of market price has been endemic for some time.
Any sort of market involves trust. Without it, there would be no "market" ... and no functioning currency.
In the words of Ronald Reagan, "Trust but verify". The problem with crypto --- there is no verification. Noone is watching those running the market. It's all blind trust.
And consequently, the crypto market is a fraudster's paradise.
There is no escaping this. Even peer to peer traders turn to "trust" in the market (aka the "exchanges") to price their crypto. And the crypto market has proven untrustworthy over and over again. This is just another example.
You will trust somebody --- who is it gonna be? Crypto or fiat?
You seem to misunderstand what the term trustless means in blockchain.
It means that you can verify the transactions on the network yourself and don't have to rely on any 3rd party to tell you whether a transaction is valid.
For example, if you want to sell an NFT to someone for 1 ETH, you don't need to rely on any centralized exchange, price oracle, or API endpoint to do that. You can run your own validator or full node, write and deploy a contract to handle to swap, have both parties verify the contract, and then execute it on chain. The parties don't even have to be two people who have ever met or communicated with each other and can work completely independently to execute the trade.
In reality, people do trust others and only the most extreme blockchain supports verify contract code and run nodes, but it's your choice on how much trust you have to rely on.
Sure, centralized exchanges can manipulate token prices, but the price can only be manipulated in the short term, and decentralized exchanges can help create a more honest market where prices are based off of real, transparent order books and every trade has a cost, which makes wash trading more difficult at scale.
Wait --- so all this stuff I read about not trusting fiat was just wrong? Seems like a lot of crypto bros are confused too.
Sure, centralized exchanges can manipulate token prices, but the price can only be manipulated in the short term
You mean like when the price of Bitcoin shoots up to $60K before it falls back to $20K --- and then the cycle starts all over again?
Who could possibly object to that? After all, it's only short term. What's a little manipulation among friends?
You're seeing multiple perspectives and incorrectly attributing them to the idea of "trustlessness". That isn't an issue with cryptobros being confused, that's an issue with you not understanding what trustlessness means.
There are plenty of people in the blockchain space who don't trust fiat, but "trustlessness" was never meant to represent that a 3rd party couldn't manipulate the price.
> You mean like when the price of Bitcoin shoots up to $60K before it falls back to $20K --- and then the cycle starts all over again?
Again, you're focused on price manipulation which was never part of the idea of trustlessness. It was always expected that a market would arise for BTC and ETH because there would be demand due to their decentralized and trustless nature, but nothing was built into those blockchain protocols to stop price manipulation because that isn't a concern.
Trustlessness is all about your ability to independently verify the code you interact with and whether a transaction is finalized or not.
Crypto itself has decentralized exchanges like Uniswap where you don't have to trust anyone and nobody can cheat or wash trade. DeFi is what crypto is good at and centralized exchanges like this, Coinbase, and Binance are not DeFi.
Coinbase and Binance own Defi too --- by sheer weight of their marketplace presence and fake trading volume.
The proof --- try to find someone selling Bitcoin on Defi for a rate that differs significantly from Coinbase and Binance.
Whoever has the gold makes the rules --- and it ain't DeFi.
Binance and friends/accomplices have all the gold (aka stablecoins) they need to manipulate any coin they choose in whatever way they choose. If they need more, they can just mint some --- no questions asked. They effectively own the crypto market due to the lack of regulation.
This would quickly result in washing out all fake volumes across the market.
Because a bitcoin users and supporters does:
1. Hold your own keys: in other words, never let bitcoin sit on any exchange. 2. buy and hold: what happened to the good-old ethos of saving for a rainy day? 3. dollar-cost-averaging: It simply doesn't matter if today's price is up or down. Just buy a little bit with the $ you can spare, and let it sit for later when you really need it.
Having said that. I don't think its going anywhere. Given no recession on the horizon and FED can't hike interest rates anymore infact they are going back to printing more money next year which creates more dumb money to continue playing stupid games like crypto
Fraud protection (and protection against the bank itself making mistakes) may not be perfect, and will vary by jurisdiction, but it's more than nothing.
I feel like this sentence doesn't know how cryptocurrency or cash works.
Hackers steal money from a bank account, if it's the bank's fault it was possible, the bank makes you whole.
Is that a given?
None of this is true. In fact, just yesterday the Fed indicated there will be at least one more hike this year.