Almost a quarter (24%) of cryptocurrency tokens launched last year displayed the tell-tale signs of a pump-and-dump fraud scheme, according to Chainalysis.
Pump-and-dump schemes are common in traditional finance. Fraudsters typically promote assets they hold stocks in to other investors, rapidly driving up the price. When it reaches a certain point they sell the over-valued shares at a profit, causing the price to plummet.
Crypto tokens, tradeable digital assets built on another cryptocurrency’s blockchain, are increasingly popular among the same scammers.
“This is largely due to the relative ease with which bad actors can launch a new token and establish an artificially high price and market capitalization for it ‘on paper’ by seeding the initial trade volume and controlling the circulating supply,” Chainalysis explained.
“Additionally, teams launching new projects and tokens can remain anonymous, which makes it possible for serial offenders to carry out multiple pump-and-dump schemes.”
The blockchain analysis company looked at the 1.1 million tokens launched last year on the Ethereum and BNB blockchains. It said virtually all saw almost no activity following launch.
Of the 40,521 tokens that did gain traction, 9902 (24%) saw a 90% price drop in the first week after launch, singling them out as pump-and-dump scams.
It seems like the same fraudsters were responsible for multiple scams last year. The most prolific individual launched 264 suspect tokens in 2022, Chainalysis said.
“In total, buyers not believed to be associated with the tokens’ creators spent a total of $4.6bn worth of cryptocurrency acquiring some of the 9902 suspected pump-and-dump tokens we identified — a relatively trivial amount compared to the trillions in crypto-transaction volume in 2022, but still a substantial amount of damage for unsuspecting investors,” the report concluded.
“We estimate that the creators of these tokens made a total of $30m in profits from selling off their holdings before the tokens’ value plummeted.”
