Studies by market analysts and regulators have repeatedly found that a large share of reported spot volume on unregulated venues cannot be reconciled with observable order-book activity. The incentive is obvious: rankings drive listings, listings drive users.
For a trader the harm is practical rather than moral. Sizing a position against a volume figure that is mostly fabricated means discovering the real depth only when trying to exit, which is the worst possible moment to learn it.
Sanity checks: compare volume against market-depth-crypto within 1% of mid, look for volume that leaves no price footprint, compare the same pair across several venues, and prefer venues whose books you can inspect directly. wash-trading-crypto is the mechanism behind most of it.
Related: wash-trading-crypto, market-depth-crypto, cex, market-manipulation