Report: 24% of tokens issued in 2022 had signs of Pump & Dump schemes
Analysts studied more than 40,000 cryptocurrencies and concluded that nearly one in four of them was created by attackers
24% of cryptocurrencies issued in 2022 had signs of belonging to Pump & Dump schemes, according to the report of analytical company Chainalysis.
Pump & Dump is a fraudulent scheme that allows developers to quickly increase the value of an asset and then sell it at a large profit - "dump." After that, the price of the token falls and investors who believed in the success of the venture are left with a cheap illiquid asset.
The spread of the Pump & Dump scheme in the crypto industry is largely due to the relative ease with which attackers can issue a new token and set an artificially high price and market capitalization for it "on paper," according to the report. As the analysts explain, developers set the initial bidding volume and control the circulating supply themselves.
In the study, Chainalysis analyzed all tokens launched in the Ethereum and BNB Smart Chain blockchains in 2022. The analysts found that more than 9.9 thousand cryptocurrencies launched last year were created just for the Pump & Dump scheme.
Of the 1.1 million tokens created in 2022, analysts singled out those (40,500) that had at least 10 swaps and four consecutive days of trading on decentralized exchanges (DEX) within a week of launch. The rest of the cryptocurrencies were not taken into account because they did not receive any meaningful support or distribution after the release.
Of the 40,500 tokens, the price of 9,900 (24%) dropped 90% or more in the first week after the start of trading. Chainalysis calls this a sign pointing to the cryptocurrency's use in the Pump & Dump scheme.
Chainalysis estimates that unrelated investors have invested $4.6 billion in 9,900 cryptocurrencies, while the creators of these tokens have made $30 million in profits from their sales.
The report shows that only 445 creators are behind the release of nearly 10,000 tokens for the Pump & Dump scheme last year. This suggests that the same individuals are launching multiple fraudulent crypto projects. The most prolific of these was an identified Chainalysis developer who released 264 such projects that year.
At the same time, analysts didn't rule out that 9.9 thousand tokens might have also included those where there was no fraud - their creators were doing their best to form a healthy supply, but the subsequent price drop was due to other circumstances in the market.
