Nearly half of the ERC-20 tokens listed on decentralized exchanges in 2023 exhibit signs potentially linked to pump-and-dump strategies, accounting for only a minimal fraction - 1.3% - of the total trading volume on these platforms.

In the world of decentralized finance (DeFi) on the Ethereum network, a recent investigation has shed light on potential instances of wash trading, liquidity removal tactics, and pump and dump schemes.

The focus of this investigation was Token A, a cryptocurrency that appears to have been manipulated by an operator, potentially leading to a rug pull in the Token A liquidity pool. The operator seems to have employed a complex attack strategy, as evidenced by the activity surrounding Token A.

Data from the investigation reveals that approximately 90,408 tokens met Criteria A, which includes tokens with no on-chain connection to the token's biggest holders, a single address removing more than 70.0% of the liquidity in the token's DEX liquidity pool, and the token currently having a liquidity of $300 or less. In the case of Token A, this single address operator is believed to have generated an estimated $830,000 in profits.

The chart illustrates how the liquidity of the DEX pool shifted during this period, showing several sharp increases in the wETH balance on August 6 and a return to zero once the address operator withdrew all funds on August 9.

The investigation also found that between January and December 2023, just over 370,000 tokens were launched on Ethereum, with approximately 168,600 available to trade on at least one decentralized exchange (DEX). However, fewer than 14.1% of all tokens launched achieve more than $300 of DEX liquidity within the subsequent month, and only 5.7% of tokens launched in 2023 are currently above that threshold.

Pump and dump schemes, a destructive force in the crypto markets, involve an actor or group of actors investing in a token, heavily promoting it to spur a price increase, and subsequently dumping their holdings at a significant profit. In one instance, the operator earned approximately $46,000 on the launch and DEX listing of Token A.

Market manipulation can be identified and addressed more effectively due to cryptocurrency's inherent transparency. The Ethereum network was analysed for potential pump and dump schemes due to its transparency and availability of on-chain information. Tools like Transpose can help monitor on-chain data for signs of unusual activity and surface actionable leads in conjunction with various forms of off-chain data.

As the crypto market continues to grow, it is crucial for market operators and government agencies to deploy monitoring tools to help maintain market integrity and stability. The 2024 Crypto Crime Report is available now, providing insights into the current state of crypto crimes and offering recommendations for improving market security.

It is important to note that while on-chain data provides a starting point for deeper investigations, the evidence is less definitive. Data from the report can be used to measure and analyze funds sent to ransomware operators, darknet markets, or sanctioned entities, but possible market manipulation proceeds and estimates of victim losses are not included in the count of total illicit transaction volume due to lack of information to determine criminal activity.

In conclusion, the investigation into Token A serves as a reminder of the importance of vigilance in the crypto market. As the number of new tokens continues to decline, it is crucial to ensure that the remaining tokens are legitimate and not subject to manipulation. By deploying monitoring tools and collaborating with other agencies, the crypto community can work towards maintaining a secure and transparent market.

Nearly half of the ERC-20 tokens listed on decentralized exchanges in 2023 exhibit signs potentially linked to pump-and-dump strategies, accounting for only a minimal fraction - 1.3% - of the total trading volume on these platforms.