Over Half of Ethereum Tokens on DEXs Could Be Pump and Dumps, Chainalysis Report Shows
A recent report from Chainalysis reveals that 54% of newly listed Ethereum tokens on decentralized exchanges (DEXs) exhibit patterns that suggest they may be pump and dump schemes. While these tokens show signs of being potential scams, they only account for 1.3% of total DEX trading volume. This indicates that investors are primarily putting their money into trusted tokens on exchanges.
The Chainalysis Crime Report analyzes over 160,000 tokens available for trade on DEXs in 2023. It found that actors behind pump and dump tokens collectively made $241.6 million in profit, averaging around $2,500 each. Most dumps occurred within the first few weeks of a token’s launch.
Defining Pump and Dump Behavior
The researchers established three criteria to identify pump and dump behavior on-chain. Firstly, the token must be purchased by DEX users unconnected to the token’s biggest holders, indicating an external pump. Secondly, a single address must remove over 70% of liquidity, signaling a dump. Lastly, the current liquidity must be $300 or less to demonstrate limited activity.
While these criteria help define pump and dump behavior broadly, Chainalysis acknowledges that additional external factors must be considered to legally classify each token as such.
Spotting Red Flags
One major red flag visible on-chain is wash trading, which involves simultaneous buying and selling of an asset to artificially boost its value. Investors can identify this pattern to determine if tokens have potential risks.
The report emphasizes that patterns of pump and dump schemes can often be distinguished purely using on-chain data. Every transaction is available on the blockchain, allowing investors to analyze participants and make informed decisions.
A Message to Policy Makers
Chainalysis sees this report as a positive development, highlighting the ability to address market integrity questions using data. It also emphasizes that only 1.3% of trading volume in the past year is associated with these questionable tokens. The report serves as a warning to investors to conduct thorough research before investing in unestablished tokens.
Furthermore, Chainalysis wants regulators and policy makers to recognize that pump and dump schemes can be identified using on-chain data and tools. The transparency of the blockchain provides an opportunity to dispel negative perceptions and combat market manipulation.
Hot Take: Chainalysis Report Reveals High Percentage of Potential Pump and Dump Tokens on DEXs
A recent Chainalysis report has shed light on the prevalence of potential pump and dump schemes among newly listed Ethereum tokens on decentralized exchanges (DEXs). The report reveals that over half of these tokens display patterns suggestive of pump and dump behavior. However, they only represent a small fraction of total DEX trading volume. While this highlights the existence of possible scams, it also indicates that investors are primarily focusing on trusted tokens. Chainalysis emphasizes the importance of conducting thorough research before investing in unestablished tokens. Additionally, the report underscores the transparency of on-chain data in identifying pump and dump schemes, providing regulators with a valuable tool to combat market manipulation.
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