Aevo’s drastic trading volume drop triggers wash trading allegations

The decentralized crypto perpetual and options exchange Aevo recently experienced a significant surge and subsequent fall in daily trading volume, raising concerns about potential market manipulation. The volume skyrocketed from approximately $100 million to over $4.5 billion, only to revert to its initial levels shortly after.

Aevo trading volume volatility triggers suspicions

Many market participants accused the spike in volume of being the 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. This creates a false impression of increased trading activity.

Julian Koh, the founder of Aevo, addressed these accusations by explaining that some users were inflating volumes to over $1 billion to qualify for airdrops. However, he clarified that this surge occurred before a snapshot was taken, and the activity has since ceased.

This boom-bust volume pattern is not unique to Aevo. Other protocols like Blast, and Ether.Fi and EigenLayer have also witnessed a surge in Total Value Locked (TVL) as traders participate in 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.

In traditional securities markets such as stocks, wash trading is strictly prohibited. Similarly, there have been regulatory crackdowns 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 spike in daily trading volume on Aevo.

DeFi Made Here, a pseudonymous analyst, highlighted that the exchange’s daily volume surged to nearly $5 billion, with large trades of same-day options occurring at strikes significantly out of the money. This activity, coupled with the rapid rise and fall of volume, raised suspicions of potential market manipulation.

Airdrop farming and regulatory scrutiny

One significant example was 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 the unusual nature of such trades. The data revealed that daily options volume on Aevo surged from $100 million to $4.56 billion on Feb. 29 before plummeting back to less than $50 million.

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.

DeFiLama’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.

This program, which ended on March 13 with a $95 million AEVO token airdrop to users, was closely tied to platform usage. Additionally, Aevo’s debut on Binance’s cryptocurrency exchange with a new launch pool further fueled interest in farming the AEVO token by staking BNB and FDUSD.

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.