Recent Volatility in Aevo’s Trading Volume Sparks Concerns Over Potential Market Manipulation
The Controversial Surge and Fall in Aevo’s Daily Trading Volume
The decentralized crypto perpetual and options exchange, Aevo, has recently experienced a significant increase and subsequent decrease in daily trading volume, causing alarm among market participants regarding potential market manipulation. The exchange’s trading volume skyrocketed from approximately $100 million to over $4.5 billion, only to revert back to its initial levels shortly thereafter (Kanter, 2023).
Suspicions of Wash Trading and Market Manipulation on Aevo
Many market observers have accused the sudden surge in volume on Aevo as a result of wash trading, a deceptive practice where a trader artificially boosts activity by acting as both the buyer and seller in the same transactions (Investopedia, 2023). This creates a false impression of increased trading activity.
Explanations from Aevo’s Founder
Julian Koh, the founder of Aevo, addressed these accusations by explaining that some users had inflated volumes to over $1 billion in order to qualify for airdrops. However, he clarified that this surge occurred before the snapshot was taken and the activity had since ceased (Cointelegraph, 2023).
Airdrop Farming as a Strategic Trend in Decentralized Finance
This boom-bust volume pattern is not unique to Aevo. Other decentralized finance (DeFi) protocols like Blast, Ether.Fi, and EigenLayer have also witnessed a surge in Total Value Locked (TVL) due to a strategy known as airdrop farming. This strategy involves parking funds to earn loyalty points, which may be converted into valuable tokens if the protocols issue them via an airdrop (DeFi Pulse, 2023).
Regulatory Scrutiny and Wash Trading
Wash trading is strictly prohibited in traditional securities markets. There have been regulatory crackdowns on wash trading in the crypto space as well. Allegations of wash trading on social media platforms prompted pseudonymous analysts and authors to raise concerns about the sudden surge in daily trading volume on Aevo (DeFi Made Here, 2023).
Airdrop Farming and the Nature of Options Trades on Aevo
On Feb. 17, when ether (ETH) was trading between $2,720 and $2,820, there were trades of out-of-the-money (OTM) $3,025 ETH call options on Aevo. These options were set to expire on the same day, leading to skepticism due to their unusual nature (Cointelegraph Pro, 2023). Large trades of OTM options occurred at strikes significantly out of the money, with daily options volume on Aevo surging from $100 million to $4.56 billion before plummeting back to less than $50 million.
Wash Trading, Airdrop Farming, and the Consequences for Decentralized Exchanges
This fluctuation, combined with the nature of the options trades, fueled suspicions of wash trading. It is important to note that each option contract represents one bitcoin (BTC) or ether (ETH). Therefore, even a small amount of wash trading can artificially inflate notional volume in a market experiencing upward trends.
The DeFi community’s builder echoed these concerns, stating that the volume spike was likely due to wash trading, especially considering Aevo’s program that rewarded volume for airdrop participation. Aevo had launched a farming program to reward early adopters with its AEVO token based on trading volume, fees, and loyalty (DeFi Lama, 2023). This program ended on March 13 with a $95 million AEVO token airdrop to users.
The surge and subsequent fall in daily trading volume on Aevo, along with allegations of wash trading and airdrop farming, have highlighted the challenges and risks associated with decentralized exchanges in the crypto space. Regulatory scrutiny and transparency measures will likely play a crucial role in addressing these concerns and ensuring the integrity of the market.
References
- trading allegations as daily volume soars and falls, Cointelegraph, 2023.
- , Twitter, 2023.
- , Twitter, 2023.
