The big advantage of creating a financial market on a permissionless network is that there are no rules. That may also be a drawback.
Data released Thursday by on-chain research firm Chainalysis suggests that 54% of all tokens launched on Ethereum in 2023 were a pump-and-dump scheme in which insiders defrauded the market and profited. This suggests that the company was exposed to trading activity that
To be clear, the prevalence of this activity is limited in scope. These tokens accounted for only 1.3% of the total trading volume of Ethereum’s decentralized exchange network in 2023.
Nevertheless, this highlights the permissionless nature of Ethereum. Anyone with little effort can create an ERC-20 token, create a trading pool on Uniswap or any other of his DEXs, trade it themselves to create an impression of activity, and bots take the bait. When you buy, you can withdraw liquidity. And profit.
Chainalysis said that in one instance, it identified a single wallet that issued 81 tokens and appeared to have generated more than $800,000 in net profits. At least one of its creations involved repeated wash trades that removed the liquidity of his ETH from the token’s DEX trading pool (a so-called “lag pull”), leaving other traders unable to get out of it.
Chainalies is best known for providing crypto businesses, especially government agencies, with investigative tools that help police illegal activities such as trading in darknet markets and sanctions violations.
All of this is made possible by the transparency of the Ethereum blockchain. Because all transactions are publicly recorded, Damenik creates a digital breadcrumb trail.
Kim Grauer, director of research at Chainalysis, said that without more information, it is impossible to determine with certainty whether the activity is actually malicious, much less illegal. Stated. Still, the data suggests that there is a wide range of “potential fraud” (as one observer called it) that requires attention and research.
“The goal of the current game is to educate people that they can search on-chain data for a lot of activities that may raise eyebrows,” she said.
