Pump-And-Dumps Plagued by High Failure Rate
A recent study by Chainalysis reveals that pump-and-dump schemes in the cryptocurrency market have a high failure rate. Between January and December 2023, over 370,000 tokens were introduced on Ethereum, with approximately 168,600 available for trading on decentralized exchanges (DEXs). Out of these, 54% met Chainalysis’s criteria for potential market manipulation. In total, malicious actors made $241.6 million through these schemes in 2023. However, despite the significant profit earned, the average profit per token meeting Chainalysis’s criteria was only $2,672, representing just 1.3% of Ethereum DEX trading volume. This suggests that most pump-and-dump tokens fail to generate substantial profit or attract significant trading volume.
Shady Deals
Last year, Chainalysis found that 24% of tokens introduced in 2022 exhibited characteristics of pump-and-dump activities. This highlights the prevalence of influencers engaging in shady promotion deals without transparency, causing harm to projects and their supporters. One example is on-chain sleuth ZachXBT, who exposed popular crypto traders TraderNJ, PetaByte, XO, and Trader SZ for participating in a pump-and-dump scheme. These individuals allegedly profited from the scheme while disregarding their followers’ interests. ZachXBT had previously accused crypto influencer Lark Davis and YouTuber Logan Paul of promoting similar schemes.
Hot Take: Pump-and-Dumps Can Undermine Crypto Markets
Pump-and-dump schemes pose a serious threat to the crypto markets. They involve manipulating token prices for personal gain and can cause significant losses for unsuspecting investors. While Chainalysis’s findings reveal a high failure rate for these schemes, they still result in substantial profits for some bad actors. The transparency of the blockchain provides an opportunity to build safer markets by deploying monitoring tools to identify and investigate potential market manipulation. It is crucial for market operators and government agencies to take action against pump-and-dump schemes to protect investors and maintain the integrity of the crypto industry.
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