How to Identify Spot Wash Trading and Futures Scams in Web3

BeginnerLast Updated 2026-08-28

In the cryptocurrency market, risks do not come only from price volatility. They can also stem from market manipulation and carefully designed scams. This guide breaks down two common threats—spot wash trading and futures investment scams—and provides practical strategies to help you identify and avoid them.

Spot Wash Trading: How to Identify and Avoid It

Wash trading occurs when the same beneficial owner uses one or more related wallet addresses to repeatedly buy and sell the same asset, creating artificial trading volume, market activity, or price momentum while their actual economic exposure changes little.

In DEX environments, creating multiple wallet addresses involves relatively low barriers. When transaction fees are low or trading incentives are offered, the cost of wash trading may also be relatively low.

Case	Method	Key Takeaway
LooksRare (2022)	“Trade-to-earn” incentives led users to trade assets back and forth to farm rewards, with around 95% of trading volume attributed to wash trading	When token incentives are involved, trading volume should be interpreted with caution
Bitwise Report (2019)	At the time, around 95% of reported BTC spot trading volume was suspected to be fake or non-economic	Check whether trading volume is consistent with actual order book depth
Hydrogen Market Manipulation Case (SEC charges filed in 2022)	A market maker used automated wash trading to create an artificial appearance of liquidity before selling tokens into the market	The SEC brought enforcement action over market manipulation

On-chain data checks (Etherscan / BscScan):

Warning Sign	What It May Indicate
Very few token holders but extremely high trading volume	A weak genuine user base
Top 10 addresses hold more than 70% of supply	High token concentration and greater manipulation risk
Many addresses become active around the same time and receive initial gas funds from the same source	Potential batch-controlled or related wallets

When assessing holder concentration, exclude known burn addresses, liquidity pools, exchange wallets, and other identified contract addresses where appropriate.

Trading patterns:

Pattern	Description
Repeated round-trip trades	Related addresses repeatedly buy and sell while their net positions remain largely unchanged
Highly uniform trade sizes	Transaction amounts repeatedly appear at similar or identical levels
Mechanical timing	Trades occur at fixed or highly regular intervals
Limited external inflows	Funds mainly circulate within the same closed group of addresses

Supporting metric:

24h Trading Volume / Liquidity Pool Depth

If trading volume remains significantly higher than available liquidity while the number of token holders shows little or no growth, this may be a warning sign. Further verification using wallet relationships, funding sources, and trading patterns is still required.

Do not use trading volume alone when evaluating a token. Pay attention to the growth of unique token holders.
Check whether liquidity is locked. Unlocked LP positions may allow liquidity to be withdrawn at any time.
Verify whether the smart contract is open source and whether it includes minting privileges, blacklist functions, or other potentially risky permissions.
Be cautious of projects offering “trade mining” or volume-based rewards.
Exercise extra caution with small-cap tokens, as shallow liquidity can make them easier to manipulate.

Futures Investment Scams: Beware of Carefully Constructed Illusions

Case	Method	How to Identify the Risk
Squid Game Token (2021)	The token contract restricted selling while allowing purchases. The project team later withdrew liquidity and disappeared with around $3.3 million	Test both buying and selling with a small amount; use tools such as Token Sniffer to check for honeypot characteristics
JPEX (Hong Kong, 2023)	Claimed to be licensed, promoted returns of around 20%, and later raised withdrawal fees to 999 USDT while restricting access to user funds. The case involved approximately HKD 1.6 billion	Verify licensing information directly through the relevant regulator’s official website
Pig Butchering Investment Scam	Scammers build trust through social or dating platforms → direct victims to a fake investment platform → allow small withdrawals to build confidence → block larger withdrawals and demand additional “taxes,” “margin,” or other payments	If a platform asks you to transfer additional funds as a “margin deposit,” “unfreezing fee,” or “tax” before allowing withdrawals, treat it as a major scam warning sign
High-Leverage Risk	Insufficient liquidity and clustered liquidations can amplify market movements and trigger cascading liquidations	At 20x leverage, an adverse move of only several percent can result in substantial losses or even liquidation. The actual liquidation price depends on factors such as maintenance margin requirements and margin mode

Pitch	What It Really Means
“Guaranteed principal and returns” / “Guaranteed profits”	Futures trading cannot guarantee principal or profits. Such promises are a major warning sign
“Insider information” / “Expert trading signals”	Be cautious of unverified individuals who promise returns or direct you to specific platforms
“Limited-time high yield — 30% APR”	Unusually high or guaranteed returns should be treated as a major risk signal
“Licensed in Country X”	Always verify licensing claims through the regulator’s official website
“Pay a margin deposit before withdrawing”	Requests for additional payments before withdrawals are a common scam tactic
“Claim this airdrop — connect your wallet”	Connecting a wallet may be followed by malicious transaction or approval requests. Always verify what you are signing

Unnecessary or unlimited token approvals are a common wallet security risk. Unlimited approvals can significantly increase potential losses if the approved contract or spender is malicious or compromised.

Protective Measure	What to Do
Regularly review and revoke approvals	Use tools such as Revoke.cash
Reject unfamiliar signing requests	Pay particular attention to Permit and setApprovalForAll requests
Separate wallets by purpose	Keep large holdings in a hardware wallet and separate them from wallets used for frequent interactions
Access DApps only through official channels	Be cautious of phishing websites promoted through search engine ads
Use transaction simulation tools	Tools such as Rabby and Pocket Universe can help identify suspicious transactions before signing

💎 Core Principles

The more certain a promised return sounds, the more cautious you should be.

Data can be manipulated, but on-chain relationships are harder to hide.

Verify before you commit. Use the smallest practical amount to test the full process—from buying and holding to selling and withdrawing. However, a successful small transaction or withdrawal does not prove that a platform or token is safe. Always verify the platform, smart contract permissions, and on-chain activity independently.

Separate and isolate risk. Use different wallets for assets with different risk levels.

Disclaimer: The information on this page may come from third parties and does not necessarily reflect KuCoin’s views. It is provided for general reference only and should not be interpreted as financial or investment advice.

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