A recent study by blockchain analytics firm Chainalysis found that 24% of the tokens launched in 2022 had the characteristics of pump-and-dump schemes.
Most of the tokens plunged by 90% in the first week of their launch after their creators dumped their holdings. This, according to Chainalysis, is a typical feature of a pump and dump scheme.
Over 9,000 New Tokens in 2022 Were Fraudulent
Crypto pump-and-dump schemes involve the creators of a digital asset hyping and promoting the token, often with misleading statements, which would cause the price to surge rapidly as new investors join the project. The creators would then sell their holdings and amass profits while the price of the token plummets, leaving the investors stuck with low-value assets.
According to the report, over 1.1 million new tokens were launched on Ethereum and BNB Chain in 2022. After evaluating the projects with criteria of 10 minimum swaps and four consecutive trading days in the week after their launch, Chainalysis found that only 40,521 tokens gained traction.
Among the 40,521 tokens that gained traction, the price of 9,902 (24%) declined significantly in the first week after launch, showing telltale signs of possible pump-and-dump activity. A price decline of 90% or more is a clear sign that the creators of the tokens dumped their holdings quickly.
Chainalysis noted the possibility of market forces affecting the tokens’ price movement, despite so much effort put in by the teams.
While the promotional strategy for such tokens remains uncertain, Chainalysis used an evaluation service to score new tokens on a scale of zero to 100 based on their trustworthiness. All 25 that were evaluated scored zero, indicating that they were most likely pump-and-dump schemes.
Victims Invested $4.6B in Pump and Dump Schemes
Furthermore, the blockchain analytics firm revealed that victims of the pump-and-dump schemes spent and are stuck with roughly $4.6 billion in crypto. In comparison, the creators amassed $30 million in profits after selling their holdings.
An on-chain pattern also suggested that the wallets involved in the schemes share common ownership.