Market manipulators made a staggering $240 million last year by artificially inflating the value of Ethereum tokens, as per a report by Chainalysis.
The blockchain analysis firm delved into the 370,000 tokens launched on Ethereum throughout 2023, with 168,600 of them being tradable on at least one decentralized exchange (DEX).
It was revealed that in a typical month last year, less than 14% of all tokens launched managed to achieve over $300 of DEX liquidity in the following month, and currently, less than 6% of the tokens launched in 2023 maintain liquidity above that threshold.
While some of this could be attributed to the challenging market conditions, Chainalysis suggested that there may be fraudulent activities at play. The firm identified tokens that exhibited characteristics of pump-and-dump schemes, including multiple purchases by DEX users with no on-chain connection to the token’s major holders, significant removal of liquidity by a single address, and dwindling liquidity levels post manipulation.
According to Chainalysis, about a quarter of Ethereum tokens and over half of those listed on a DEX met the aforementioned criteria. Although this only represented 1.3% of the total trade volume on Ethereum DEXes, it potentially yielded fraudsters up to $242 million in profits.
Despite the significant sum, individual tokens involved in the manipulation only generated an average profit of $2600. Nonetheless, the practice poses a threat to the overall market integrity, as highlighted by Chainalysis.
The firm emphasized the detrimental impact of market manipulation, such as pump-and-dump schemes, on both crypto and traditional markets. However, it also noted that the transparency of cryptocurrencies presents an opportunity to establish safer markets.
Chainalysis suggested that market operators and regulatory agencies could leverage monitoring tools to detect and address suspicious activities, a capability that is more challenging in traditional markets.
Pump-and-dump schemes typically involve hyping up an asset to inflate its price before swiftly selling for profit, ultimately leading to a sharp decline in value and harming unsuspecting investors. Such schemes underscore the importance of vigilance and regulation in the crypto space to safeguard market participants.