Digital asset markets (DAMs) are marketplaces for cryptocurrencies and stablecoins. In recent years, numerous hacks and frequent incidents of fraud and manipulation on these markets have made headlines, unsettled investors and led to considerable financial losses. Prominent examples include the collapse of FTX, in which customers lost over USD 1 billion, and the hack of Bybit, in which hackers stole USD 1.5 billion. The FIRM-funded project “Integrity of Digital Asset Markets” supports investors, financial intermediaries, regulators and researchers in assessing the integrity of DAMs and estimating trading risks. To this end, integrity-relevant characteristics and integrity violations were identified, quantitative and qualitative assessment measures were derived and empirically evaluated, and market reactions to cases of official prosecution of integrity violations were investigated.
Features of digital asset markets
In recent years, trading in crypto assets has evolved from an often speculation-driven retail market to a market with many institutional investors – especially since the approval of spot-based ETFs on Bitcoin and Ether in the US in 2024. In addition, there has also been a recent shift in the way traditional financial institutions view offering these assets to their clients. Many institutions have abandoned their reluctance, which was often based on integrity issues, and are now also giving private clients access to DAMs. In this context, integrity issues are defined as all activities and events that restrict the generation of efficient prices, for example through insider trading or market manipulation, enable unauthorized access to investor funds or impair the underlying market infrastructure.
DAMs can be divided into two basic types. The first and larger group are Centralized Exchanges (CEX) such as Binance, Coinbase or Kraken. These have been active since around 2010 and are similar to traditional stock exchanges with open limit order books. The second, somewhat smaller and newer group are Decentralized Exchanges (DEX) – for example Uniswap, Balancer, Curve or Sushi. These are often assigned to the DeFi (Decentralized Finance) area and have been active since around 2017. In contrast to CEX, prices are set and liquidity is provided via automated market makers (AMMs). These are blockchain-based algorithms and smart contracts that automatically determine prices and trading volumes.
At CEX, order matching and settlement usually take place outside the blockchain. These exchanges therefore also act as custodians for cash or cryptocurrencies, which has often been unsafe in the past (see the FTX case, for example). In contrast, with DEX, trading and settlement take place directly on the blockchain using keys stored in the user’s own wallet, allowing users to retain full control over their crypto assets.
Due to their inherent characteristics, DeFi protocols in particular have considerable potential for money laundering and terrorist financing. Further integrity problems result, for example, from the pseudonymity of the participants, who are only identified by their wallet addresses, or from the immutability of transactions recorded on the blockchain, which are irreversible even in the event of evidence of fraud, insider trading or market manipulation. These properties lead to integrity problems on DAMs that do not exist on traditional financial markets. In general, both CEX and DEX – when looking at assets outside of the major cryptocurrencies – are less liquid, which poses a further problem for market integrity and invites market manipulation.
Integrity violations on digital asset markets
| Category | Frequency (relative) |
| Cyber-Attack (CA) | 1687 (32.21%) |
| Investment Fraud and Scam (S) | 1450 (27.68%) |
| Missing Regulatory Approval (MRA) | 1182 (22.57%) |
| Market Manipulation (MM) | 586 (11.19%) |
| Accounting fraud (AF) | 241 (4.60%) |
| Insider Trading (IT) | 92 (1.76%) |
The actual frequency of integrity violations on DAMs is still largely unclear, particularly with regard to the type of violations. As part of the project, an overview of possible integrity violations was therefore initially drawn up. This was based on known violations on traditional financial markets and a systematic literature review on violations resulting from the specific characteristics of DAMs.
Using a developed taxonomy for these integrity violations, it was possible to show that certain offenses strongly depend on the structure of the respective marketplace [Clapham et al., 2023]. For example, governance-related integrity violations by the marketplace operator itself are particularly relevant for CEX. In contrast, the exploitation of faulty smart contract implementations occurs particularly in DEX.
Based on an analysis of crypto messages from the CoinDesk portal, we were also able to achieve an approximation of the absolute and relative frequencies of these problems by assigning them to individual integrity violations (see Fig. 1 and Table 1). It can be seen that cyberattacks, investment fraud and scams are by far the most common integrity violations. Examples of cyberattacks include wallet hacks and smart contract exploits, while fraud includes Ponzi schemes and fake DAMs.
In recent years, there has been an increase in problems related to a lack of regulatory compliance and insufficient registration of DAMs. This is in line with specific regulations for the industry, precedents and more consistent enforcement of regulatory requirements. At the same time, there has been a significant increase in the reporting of integrity violations. This corresponds with growing investor interest in DAMs and digital assets, an increasing number of market participants and therefore a greater financial incentive for fraudsters.
Classic market manipulation, which is already known from traditional financial markets, accounts for around 11% of reporting. However, several studies indicate that a large part of the trading volume on unregulated DAMs is generated by wash trading, i.e. by artificially faking trading activity in order to attract investors [Cong et al., 2023].
Measuring integrity in digital asset markets
In order to enable market participants to assess the integrity of DAMs, we have developed a comprehensive framework in the project. It systematically assesses the integrity of DAMs along the dimensions of market abuse, governance and cyber security, taking into account the different market architectures of CEX and DEX [Jakobs et al., 2025a].
Depending on the availability of data and the technical, methodological or time capacities of the user, the framework shows various quantitative and qualitative criteria for assessing the integrity of a DAM. Examples of this are deviations from usual distributions of historical trading data in the area of market abuse, the connection with a legal entity and the transparency of management in the area of governance as well as specifications for authentication and key management in the area of cyber security. These criteria can be used to systematically identify potential weaknesses in the respective areas.
Reactions from the regulator and supervisory authorities
Regulators and supervisory authorities have responded to the increasing integrity issues on DAMs. Various jurisdictions – including the US and the EU – have enforced regulations more consistently and introduced new sets of rules. In the EU, this is the MiCAR in particular, which has defined clear requirements for trading crypto assets and for the operators of DAMs since January 2025.
In this context, we conducted an event study on enforcement actions by the US regulators SEC and CFTC regarding integrity violations on DAMs. The analysis shows that investors react to such interventions. For Bitcoin in particular, positive abnormal returns can be observed following the announcement or implementation of enforcement actions [Jakobs et al., 2025b]. This indicates that market participants value the increased regulatory consequence. In contrast, no consistent effects were observed for other cryptocurrencies, possibly because these are traded and held less as traditional investment assets and more for speculative or other purposes.
Overall, the results provide evidence that regulation and its consistent enforcement strengthens the confidence of market participants and improves the perception of the integrity of DAMs.
Conclusion
Our project results show that integrity violations on DAMs occur in many different ways and that their significance for the acceptance of DAMs has so far been insufficiently understood. Their characteristics and frequency depend in particular on the respective market structure (CEX vs. DEX). Currently, cyber-attacks, investment fraud and scams pose the greatest challenge. The framework we have developed provides a basis for systematically identifying and classifying integrity risks. At the same time, however, it also shows that consistent regulation, reliable supervision and judicial enforcement can strengthen market participants’ confidence in crypto assets and DAMs.
Clapham, B./Jakobs, J./Schmidt, J./Gomber, P./Muntermann, J. [2023]: A Taxonomy of Integrity Violations in Digital Asset Markets, in: Proceedings of the 44th International Conference on Information Systems; Hyderabad, India.
Cong, L. W./Li, X./Tang, K./Yang, Y. [2023]: Crypto Wash Trading, in: Management Science 11/69, pp. 6427-6454.
Jakobs, J./Clapham, B./Schmidt, J./Gomber, P./Muntermann, J. [2025a]: From Shadows to Trust: Designing a Model for Integrity Assessment in Digital Asset Markets, in: Working Paper.
Jakobs, J./Clapham, B./Muntermann, J. [2025b]: Empirical Evidence on Misconduct and Law Enforcement in Crypto-Asset Markets, in: Working Paper.