The leaks · 45 / 86 · 2 min
Fake volume and painted charts
Volume is how much supposedly traded. A painted chart is a price drawn by the same people on both sides. Busy is not the same as real.
A painted chart is a price drawn by the same people on both sides.
A worked case
A coin looks busy, so a buyer uses a market order. The book behind the volume is empty. The fill is far from the last price. The volume was the costume of a crowd.
Wash trades
One group buys and sells to itself. The chart moves. The volume number rises. Outsiders see demand that was never there.
What to look at instead
Can you sell a small amount without the price collapsing. Is the liquidity larger than a costume. Are the trades coming from many addresses or a handful.
A straight line up, with no one able to name who is buying, is a drawing.
The crowd was two wallets
Wash trading is a trade between accounts controlled by the same people, so that volume and price appear. NFT markets in 2021 and 2022 were a public demonstration. Chainalysis wrote in 2022 that a large share of NFT volume showed wash-trading patterns. Token markets have done the same thing for longer: a pair looks busy, a market-order buyer pays the printed price, and the book behind the print is empty.
Exchanges have also reported volume that other researchers could not find on the chain or in the order book. The number is an input to rankings, and rankings bring listings and fees. A leaderboard is not a measurement until you know who measured it and who gets paid if the number is large.
Before you use volume as evidence that you can leave, look at the size resting near the price, not at the daily total. The total can be the same people passing a coin back and forth.
Read it yourself
- Chainalysis: NFT wash trading in the 2022 crime report preview
- OpenSea, the market where a lot of that volume was displayed
These links are the record. They are not a recommendation, and they are not instructions. A news story or a court paper can still be wrong about a detail. The check does not change because a famous name is in the story.
Apply the check
Open a question. The line is about this topic. It is not a verdict that anything is safe.
The wallets painting both sides, until a stranger pays.
They do, by trading with themselves.
The empty book, when you try to leave.
Check yourself
Does high volume prove organic demand?
No. It can be the project trading with itself.
After this you can distrust volume you cannot imagine a real buyer for.