Market manipulators have potentially raked in more than $240 million last year by artificially boosting the value of Ethereum tokens, as per the findings of Chainalysis.
The blockchain analysis firm delved into the 370,000 tokens launched on Ethereum during the span of January to December 2023, with 168,600 tokens being tradeable on at least one decentralized exchange (DEX).
It was revealed that in any given month in 2023, less than 14% of all tokens launched managed to surpass $300 in DEX liquidity in the subsequent month, with less than 6% of tokens from 2023 currently meeting that threshold.
While the challenging market conditions can account for some of this lackluster performance, Chainalysis suggested that a portion of this activity could be attributed to fraudulent practices. The firm identified tokens that exhibited characteristics associated with pump-and-dump schemes, including:
– Tokens being purchased five times or more by DEX users without any on-chain connection to the token’s major holders, indicating market traction.
– A single address withdrawing over 70% of the liquidity from the token’s DEX liquidity pool, signaling a major holder dumping the token, often shortly after its launch.
– Tokens currently having liquidity of $300 or less, indicating a market collapse post-liquidity removal.
Chainalysis found that 24% of Ethereum tokens and 54% of DEX-listed tokens met these criteria, comprising 1.3% of total trade volume on Ethereum DEXes and potentially generating $242 million in profits for market fraudsters.
Despite the seemingly lucrative returns, individual tokens affected by such manipulation only yielded an average profit of $2600. Nonetheless, Chainalysis emphasized that this practice could undermine the overall market integrity.
The firm stated, “Market manipulation, such as pump-and-dump schemes, are detrimental to the crypto markets just as they are to traditional markets. However, the transparency inherent in cryptocurrency presents an opportunity to establish safer markets.”
It further suggested that market operators and regulatory agencies could utilize monitoring tools to identify and prioritize areas for further investigation, a capability not readily available in traditional markets.
Pump-and-dump schemes typically involve aggressively promoting a token or stock to inflate its price, followed by selling for substantial profits. This often leads to a sharp decline or total collapse in the asset’s value, impacting unsuspecting investors.