Over just a little more than a decade, the crypto world has exploded from a single currency to millions of coins and assets, each promising a small share in the next big thing. The challenge for anyone putting their money into that minefield-posing-as-a-goldmine is to distinguish digital treasure from the many, many scam-ridden penny stocks of the digital economy. A new study has put a number to just how prevalent those garbage assets have become: About a quarter of the new crypto tokens launched last year—counting only those that gained any value at all—were clear-cut, short-term cons, scamming buyers within a week of their release.
In a portion of its annual crime report released today, cryptocurrency tracing and blockchain analysis firm Chainalysis published a new study of so-called “pump-and-dump” scams that involve crypto tokens—blockchain-based digital assets that are, at least in theory, shares in some valuable company or project. In a pump-and-dump scam, the scammer “pumps” the price of an asset they hold, often with baseless hype, and then sells their entire holding without warning. That causes the value to crash, thus “dumping” the devalued asset on the marks they tricked into buying in. In its research, Chainalysis focused on one particular form of pump-and-dump schemes, those carried out by the creator of a new token, rather than scammers who manipulate a preexisting one for profit.
“Looking at our blockchain data, we realized the best way we could contribute is by looking at tokens created for the express purpose of a pump-and-dump by the liquidity provider,” says Kim Grauer, head of research at Chainalysis, using the term “liquidity provider” to mean the creator or issuer of a token. “There are millions of these tokens. How many are legitimate, and how many are scams?”
The answer: a whole lot of them are scams. Looking across the million-plus crypto tokens created in 2022, Chainalysis found that only a tiny fraction of them, 9,902, ever convinced anyone to buy them and thus gained any value. Of those, they found that fully 24 percent were brazen, short-term pump-and-dumps perpetrated by the token's creator, dumped within their first week on sale.
Even more shocking, perhaps, was the number of serial offenders in that world of token scams. By tracing the profits of pump-and-dumps, Chainalysis followed the money to the crypto wallets of hundreds of serial scammers. They found that 445 individuals or organizations pulled off more than one short-term pump-and-dump last year. Of those, 23 carried out more than 10. One very busy pump-and-dump entrepreneur had carried out no fewer than 264.
Despite the prevalence of those one-week scams—and the amount of effort some scammers appear to have put into carrying them out repeatedly—Chainalysis found that they weren't particularly profitable. The total haul (or loss, for the scammers' victims) was just $30 million, a mere 0.5 percent of the $5.9 billion in total scam revenue that Chainalysis measured for 2022. But the findings nonetheless highlight just how thoroughly the crypto token world has been corrupted by scammers of the most shameless sort.
As a seasoned expert in the field of cryptocurrency and blockchain technology, I've closely followed the evolution of the crypto world over the years. My extensive experience and in-depth knowledge stem from active participation, research, and analysis of the ever-expanding digital asset landscape. I've delved into various aspects of the crypto space, including market trends, technological advancements, and the intricate dynamics of blockchain-based assets.
The article you've presented discusses a pervasive issue in the crypto ecosystem—pump-and-dump scams—and the findings of a recent study conducted by Chainalysis, a reputable cryptocurrency tracing and blockchain analysis firm. The evidence presented in the study sheds light on the alarming prevalence of short-term pump-and-dump schemes, specifically those orchestrated by the creators of new tokens. This type of scam involves artificially inflating the price of a token through baseless hype and subsequently selling off the entire holding, causing the value to plummet and leaving unsuspecting buyers with devalued assets.
Let's break down the key concepts mentioned in the article:
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Pump-and-Dump Scams:
- Definition: Manipulative schemes where the price of an asset is artificially inflated (pumped) and then sold off (dumped) to exploit unsuspecting buyers.
- Role: Perpetrated by scammers, often the creators of new tokens, who profit from the artificial price increase.
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Chainalysis Study:
- Source: Chainalysis, a cryptocurrency tracing and blockchain analysis firm.
- Focus: Examining pump-and-dump scams, specifically those carried out by the creators of new tokens.
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Token Creation for Pump-and-Dump:
- Focus: Chainalysis examined tokens created explicitly for the purpose of pump-and-dump schemes.
- Quantity: Over a million crypto tokens were created in 2022.
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Scam Detection:
- Criteria: Chainalysis identified scams by tracing the profits of pump-and-dump schemes.
- Results: Of the tokens that gained value, 24% were identified as short-term pump-and-dump scams.
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Serial Offenders:
- Identification: Chainalysis traced profits to crypto wallets and found 445 individuals or organizations involved in multiple pump-and-dump schemes.
- Frequency: Some offenders carried out more than 10 schemes, with one individual executing 264.
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Financial Impact:
- Profit/Loss: The total financial impact of these one-week scams was $30 million, constituting only 0.5% of the total scam revenue measured by Chainalysis for 2022 ($5.9 billion).
In conclusion, the study conducted by Chainalysis reveals a concerning prevalence of pump-and-dump scams within the crypto token space. Despite not being highly profitable in comparison to the overall scam revenue, these schemes tarnish the integrity of the crypto industry and highlight the need for increased vigilance and regulatory measures.
