On just one In just over 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 investing their money in this minefield that presents itself as a gold mine is to distinguish the digital treasure from the many fraudulent penny stocks of the digital economy. A new study has quantified just how prevalent these useless assets have become: About a quarter of new crypto tokens launched last year (counting only those that gained in value) were clear, short-term scams. buyers within a week of their release.
In part of its annual crime report released today, cryptocurrency tracing and blockchain analysis firm Chainalysis published new research on so-called pump-and-dump scams that involve tokens cryptographic – blockchain-based digital assets that are, at least in theory, shares in a 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 holdings without warning. This causes a collapse in value, thus “dumping” the devalued asset onto the brands they tricked into purchasing them. In its research, Chainalysis focused on a particular form of pump and dump schemes, those implemented by the creator of a new token, rather than scammers who manipulate a pre-existing token for profit.
“As we looked at our blockchain data, we realized that the best way to contribute was to look at tokens created for the express purpose of pumping and dumping by the liquidity provider,” explains Kim Grauer, head of blockchain. research at Chainalysis, using the term “liquidity provider” refers to the creator or issuer of a token. “There are millions of these tokens. How many are legit and how many are scams? »
The answer: Many of them are scams. Looking at over a million crypto tokens created in 2022, Chainalysis found that only a tiny fraction of them, 9,902, have ever convinced someone to buy them and gained value as a result. Of these, they found that 24% were brazen, short-term pumps and dumps perpetrated by the token creator, abandoned within their first week of sale.
Even more shocking, perhaps, was the number of serial offenders in this world of token scams. By tracing profits from pumps and dumps, Chainalysis followed the money to the crypto wallets of hundreds of serial scammers. They found that 445 individuals or organizations conducted more than one short-term pump and dump last year. Of these, 23 completed more than 10. One busy pump and dump contractor had completed as many as 264.
Despite the prevalence of these weeklong scams – and the lengths some fraudsters appear to have gone to pull them off repeatedly – Chainalysis found that they weren’t particularly profitable. The total gain (or loss, for the scammers’ victims) was only $30 million, or just 0.5% of the $5.9 billion in total scam revenue measured by Chainalysis for 2022. But the results nevertheless highlight how thoroughly the world of crypto tokens has been studied. corrupted by the most shameless crooks.
