HomeRisk ManagementsPump-and-Dump Schemes Result in $240m for Crypto Fraudsters

Pump-and-Dump Schemes Result in $240m for Crypto Fraudsters

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Chainalysis, a blockchain analysis company, has released a report claiming that market manipulators may have profited over $240 million in the past year by artificially inflating the value of Ethereum tokens. The investigation focused on 370,000 tokens launched on the Ethereum platform in 2023, with 168,600 of them available for trading on at least one decentralized exchange (DEX).

The report revealed that in any given month, fewer than 14% of all tokens launched achieved more than $300 of DEX liquidity in the subsequent month, and fewer than 6% of the tokens launched are currently above that liquidity threshold. Chainalysis argued that although some of this activity may be attributed to the challenging marketplace, a portion of it could be fraudulent.

The company identified specific criteria linked to pump-and-dump scheme activity, including the number of times a token was purchased by DEX users with no on-chain connection to the token’s biggest holders, the removal of more than 70% of liquidity in the token’s DEX liquidity pool by a single address, and the token’s current liquidity level of $300 or less.

According to Chainalysis, 24% of Ethereum tokens and 54% of those listed on a DEX met the above criteria, accounting for 1.3% of total trade volume on Ethereum DEXes. Despite this relatively small percentage, the report suggests that it may have allowed market fraudsters to profit as much as $242 million.

However, the average profit per token involved in this market manipulation was just $2600. Nonetheless, Chainalysis emphasized that such practices could undermine the entire market and suggested that cryptocurrency’s inherent transparency provides an opportunity to build safer markets.

The company stated, “Market manipulation, such as pump-and-dump schemes, is destructive to the crypto markets in the same way they are to traditional markets. However, cryptocurrency’s inherent transparency provides an opportunity to build safer markets. Market operators and government agencies can deploy monitoring tools that can help identify and prioritize areas for further investigation in a way that wouldn’t be possible in traditional markets.”

Pump-and-dump schemes involve individuals or groups heavily promoting a token or stock to drive up the price, followed by selling at a significant profit, resulting in a heavy decline or collapse of the asset’s price, impacting unsuspecting holders.

The report by Chainalysis highlights the need for increased vigilance and regulatory oversight in the cryptocurrency market to protect investors and maintain the integrity of the ecosystem. As digital assets continue to gain traction, it becomes imperative to address and mitigate fraudulent activities that can harm market participants and overall confidence in the industry.

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