This is the story of BaseFEX – a crypto exchange that unintentionally bankrupted itself through wash trading.
It’s a cautionary tale for any crypto exchange looking to get ahead by faking volume – and a solid guide for anyone who knows a bit of coding, and wants to take advantage of shady crypto exchanges.
The founding of BaseFEX
The BaseFEX crypto exchange was created in early 2019, by two Chinese nationals (Jesse Wu and Randolf Zhou).
It marketed itself as a “Bitmex alternative”, and featured a slick UI.
The exchange had a rough start. Its documentation was copied straight off of the Bitmex site, which caused people on Bitcointalk (where the exchange was originally announced) to start questioning its legitimacy.
Nonetheless, BaseFEX was eager to rise in the ranks and become the next Bitmex.
Faking volume
After being listed on Coinmarketcap and a number of other sites, BaseFEX did what many exchanges also do: Fake volume.
Faking volume allowed the site to climb in the rankings on these sites, which exposed it to a greater audience of people, and, ultimately, more customers. Because the site had large volume numbers, potential customers immediately thought that it was legitimate.
However, there was a problem: Its way of faking volume was rudimentary, to say the least.
There are three different ways of faking volume.
1. Printing fake trades
In this volume faking method, the exchange simply prints a ton of fake trades. The trades always take place within the spread, and the volume distribution of the trades is often uniform. No actual orders are submitted or matched.
2. Executing real trades, but within a network of bot accounts
This method is more subtle than the previous one, and harder to expose. It’s possible that it has been used by many of the top exchanges in the past, including Binance (Binance boss, CZ, is allegedly in control of more than 300 Binance accounts). It requires the exchange to synchronize a large number of fake accounts, making it technically non-trivial to pull off.
