Even as the cryptocurrency market matures to resemble the traditional financial world, the decentralized finance (DeFi) sector continues to witness free trade activities often subject to pump-and-dump schemes and wash trading processes. Pump-and-dump schemes usually consist of an actor or a group of actors manipulating token purchases through false claims, excitement, and fear of missing out, while secretly selling their own shares at higher prices.
Chainalysis Report on the Crypto Asset Market
According to some estimates, over two million cryptocurrencies have been launched to date, with most fading into the annals of history. A recent Chainalysis study indicates that more than 370,000 tokens were launched on the Ethereum network in 2023, with 168,600 listed on decentralized exchanges.
The study finds that less than 1.4% of all crypto assets launched in any given month achieve over $300 in DEX liquidity the following month, and only 5.7% of the crypto assets launched on Ethereum in 2023 are currently above this threshold.
The firm also discovered that approximately 90,408 crypto assets had less than $300 in liquidity on these exchanges, and a single address removed more than 70% of the liquidity in a single transaction with five or more previous DEX purchases. Chainalysis clarifies in its report that this does not mean the 90,408 crypto assets were involved in pump-and-dump schemes. Instead, it demonstrates how authorities can use on-chain data to identify suspicious patterns.
Actors launching crypto assets that meet these criteria collectively made approximately $241.6 million in profit in 2023, not accounting for other costs incurred to generate and launch the profits. Some launched multiple crypto assets meeting the criteria, with one identified wallet launching 81 different tokens and earning an estimated $830,000 in profit.
Notable Comments on the Subject
Chainalysis North America Head of Public Policy Jason Somensatto stated that adopting a regulatory framework for cryptocurrency markets could help reduce insider trading by clarifying the rules that trading platforms must follow and establishing a market regulator with enforcement authority. Somensatto added the following:
“Unlike TradFi, where a security primarily trades on a single exchange, crypto assets trade on numerous platforms and decentralized financial protocols; this means that relying on data from a single trading venue, as has traditionally been done, is not sufficient.”
