2022 saw the launch of over one million new tokens. However, a study by blockchain analytics firm Chainalysis revealed that many of the new crypto tokens looked like pump-and-dump schemes. In the new study, Chainalysis evaluated numerous new tokens that started in 2022 and discovered that 24% had pump and dump features.
According to the report, most of these coins plummeted by 90% within the first week of launch after their developers dumped their holdings.
More Than 9,000 Newly Launched Tokens In 2022 Were Rug Pulls
According to Chainalysis’ report, 2022 saw more than 1.1 million new coins on Ethereum and BNB Chain. The blockchain analytics firm evaluated the new crypto projects based on the number of trading days and swaps the week after their launch.
After evaluating the projects using 10 minimum swaps and four consecutive trading days in a week after their launch, Chainalysis made an interesting observation.
Only 40,521 of 1.1 million new tokens gained traction within the evaluation period. However, 24% (9,902) of the 40,521 tokens that gained popularity witnessed a significant price decline in the first week after their launch. Those are the characteristics of pump and dump schemes.
As per the report, a 90% or more decline in token price indicates that the coin creators dumped their holdings quickly. Also, Chainalysis noted that market forces could affect tokens’ price movements regardless of the efforts of the developer team to promote the coins.
But the promotional strategies for such coins are not always the same. Therefore, Chainalysis used an evaluation service to score new tokens’ trustworthiness on a 0-100 scale. The firm evaluated 25 new crypto tokens. They all scored zero, suggesting they were most probably pump-and-dump projects.
Furthermore, Chainalysis’s report revealed that victims of the pump-and-dump projects invested about $4.6 billion in crypto assets. These investors are stuck with losses while the creators accumulated $30 million in profits after dumping their holdings.
8% Of Ethereum Coins And 12% Of BNB Coins In 2022 Are Rug Pulls, Says Solidus
Cryptocurrency rug pull and pump-and-dump projects have become a menace in the industry in recent years. Creators of cryptocurrency pump-and-dump projects often start with promoting and hyping the tokens with misleading advertisements and statements.
False profit projections and hype usually cause a rapid surge in token prices as new investors join. Then, after gathering enough investors, the project creators would sell their holdings, acquiring massive profits and leaving investors with losses.
Solidus Lab’s Rug Pull Report suggests fraudsters deployed more than 117,000 scam tokens in 2022. The report claims that the number of scam tokens between January 1 and December 1, 2022, increased by 41% from what it was in 2021.
Solidus’ study revealed that 8% of all Ethereum tokens are rug pulls while 12% of BNB Chain tokens are scams. The report suggests that the scammers behind these tokens use crypto-to-fiat currency exchanges to execute their scams and launder the funds.
These fraudsters’ activities go unnoticed because traditional scam identification approaches cannot detect 99% of their rug pull tokens. The report revealed that during the study period, these scam projects saw total deposits and withdrawals of up to $11 billion in ETH on 153 centralized crypto exchanges.
Featured image from Pixabay, Chart from TradingView.com