Billion-Dollar Volumes and Then a Steep Drop Prompts Allegations of Wash Trading on Aevo

Daily
trading
volume
on
the
decentralized
crypto
perpetual
and
options
exchange
Aevo
recently
surged
from
around
$100
million
to
over
$4.5
billion,
only
to
fall
back
to
square
one
in
a
flash.

The
boom-bust
volume
pattern
prompted
several
market
participants
to

allege
that
the
spike
was
due
to
wash
trading,
a
type
of
market
manipulation
in
which
a
trader
repeatedly
acts
as
both
buyer
and
seller
on
the
same
transactions
to
create
the
false
impression
of
increased
activity.

Asked
about
the
accusations,
Aevo
founder
Julian
Koh
told
CoinDesk:
“Some
users
were
pumping
volumes
to
$1
billion
+,
to
get
more
of
our
airdrop.
But
the
snapshot
was
taken
last
week
so
it’s
not
happening
anymore.”

Protocols
including
Blast,
Ether.Fi
and
EigenLayer
have
seen
their
total
value
locked
(TVL)
soar
lately
as
traders
engage
in
something
called
airdrop
farming
–
essentially
parking
money
to
get
loyalty
points
that
might
get
converted
into
potentially
valuable
tokens
if
the
protocols
issue
them
via
an
airdrop.

In
conventional
securities
markets
like
stocks,

wash
trading
is
plainly
against
the
rules.

In
crypto,
there
have
been

some
regulatory

crackdowns,
too.

Explaining
the
wash
trading
allegations
made
on
social
media
X,
pseudonymous
analyst
and
author
of
Alpha
Made
Here
newsletter,

DeFi
Made
Here,
told
CoinDesk
that,
“Out
of
nowhere,
the
exchange
started
doing
the
daily
volume
of
nearly
$5
billion,
with
someone
trading
a
large
number
of
same-day
options
at
strikes
way
out
of
the
money
for
as
low
as
10
cents.”

Call
options
give
the
purchaser
the
right,
but
not
the
obligation,
to
purchase
the
underlying
asset
at
a
predetermined
price
by
later
date.
A
call
buyer
is
implicitly
bullish
on
the
market.
The
bet
pays
off
only
if
the
underlying
asset
rises
above
the
strike
price
at
which
the
call
is
bought
on
or
before
the
expiry.

Data
tracked
by
DeFilama
shows
that
daily
options
volume
on
Aevo
first
crossed
above
the
$100
million
mark
on
Feb.
17
and
rose
as
high
as
$4.56
billion
on
Feb.
29
before
falling
back
to
less
than
$50
million
early
this
week.

On
Feb.
17,
while
ether

(ETH)
traded
between
$2,720
and
$2,820,
someone
traded
out-of-the-money
(OTM)
$3,025
ETH
call
options
on
Aevo,
according
to
data
tracked
by
DeFi
Made
Here.
The
call
option
was
set
to
expire
on
the
same
day.

The
activity
has
raised
suspicion,
because
traders
typically
buy

out-of-the-money
(OTM)
calls
in
longer
duration
expiries
than
shorter
ones.
That’s
because
the
probability
of
the
bet
paying
off
is
directly
correlated
to
the
time
to
expiration.

Note
that
one
option
contract
represents
one
bitcoin

(BTC)
or
ether.
So,
a
small
amount
of
wash
trading
can
generate
a
sizable
notional
volume
in
an
upward-trending
market.

One
DeFi
options
trader
who
asked
to
stay
anonymous
pointed
to
a
similar
unusually
substantial
activity
in
the
$2,500
ETH
put
on
Feb.
29,
when
ETH
changed
hands
at
$3,500.
The
put
option
was
due
to
expire
–
likely
worthless,
since
ETH
was
trading
so
far
above
the
put’s
strike
price
–
on
March
1.

DeFiLama’s
pseudonymous
builder,

0xngmi,
on
X
recently

echoed
DeFi
Made
Here’s
allegations,
saying
the
volume
spike
was
mostly
wash
trading
as
Aevo
made
a
program
that
rewards
volume
for
airdrop.

Early
last
month,

Aevo
announced
a
farming
program
to
reward
early
adopters
of
the
exchange
with
its
recently
debuted
AEVO
token.
The
program
tracked
trading
volume,
fees
and
loyalty,
effectively
tying
farming
to
platform
usage.

The
program
ended
on
March
13,
when
Aevo

airdropped
$95
million
worth
of
AEVO
tokens
to
users.
On
the
same
day,
Aevo

debuted
on
the
biggest
cryptocurrency
exchange,
Binance,
with
a
new
launch
pool,
where
the
token
can
be
farmed
by
staking
BNB
and
FDUSD.