According to the results of a analyse conducted by Chainalysis, nearly $4.6 billion has been spent by crypto users acquiring tokens suspected of being created for the sole purpose of manipulating the market. The crypto industry research firm focused on manipulating the market by “pump and dump,” a technique that involves artificially driving up the price of a token, most often by mounting an and promotional campaign to investors. investors. This hype is accompanied by misleading and misleading statements around the relevant asset, so as to attract as many buyers as possible and cause its price to rise rapidly.
The criteria used by Chainalysis to identify “pump and dump” tokens
Nearly 1.1 million tokens were issued on the Ethereum and BNB blockchains in 2022. Chainalysis performed an initial sorting by considering only tokens that recorded a minimum of ten swap/conversion operations and four consecutive days of transactions within a week of their launch. This criterion reduces the number of tokens to 40,521.
Subsequently, analysts identified tokens that experienced drastic price drops of around 90% or more in the first week of trading. Such a large price drop suggests that the project’s initiators and early token holders got rid of it as soon as possible, a relatively obvious criterion for classifying a token as a tool for a pump and dump. Applying this criterion allows for a second sorting: of the remaining 40,521 tokens, 24% of them, or 9,902, experienced a significant price drop during the first week of their launch.
The amount of damage suffered by investors
In total, buyers who do not seem associated with the creators of the tokens spent $4.6 billion to acquire a few of these 9,902 tokens. Although this amount may be considered relatively insignificant compared to the billions of dollars of crypto transactions recorded in 2022, it still represents a considerable loss for investors.
Chainalysis estimates that the creators of these tokens made a total of $30 million in profit by selling them before their value crashed. The analytics firm noted that in many cases, a pooled wallet is driving multiple transactions for a specific token, including providing initial liquidity for project start-up.
The methodology used by the analytics firm determined that 445 individuals or groups were behind the issuance of 24% of the 9,902 tokens suspected of having been subject to price manipulation during last year. Finally, Chainalysis has identified an individual (or a group of individuals) who is particularly prolific in creating tokens intended for use in this type of scam: he is said to have participated in the creation of 264 tokens among the 9902 suspect tokens.
Given the ease with which crypto projects of this type can be launched in the market, it is up to investors to do their own research to avoid being scammed. Projects that seem too good to be true with a team of founders regarding whom no information is available (or even who choose to remain anonymous) should raise suspicion. Many believe that cryptocurrency adoption is approaching an inflection point, but as long as the general public perceives the crypto sector as insecure due to the prevalence of scams, this might significantly limit its growth.
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