2023: Majority of New Ethereum Tokens Targeted by Market Manipulation - Chainalysis

• Ethereum's Permissionless Network: A Blessing and a Curse
• Limited Scope of Irregular Trading Activity
• Ethereum's Permissionless Nature: A Double-Edged Sword
• Chainalysis and Its Investigative Tools
• The Transparency of the Ethereum Blockchain
• Deciphering On-Chain Data

Ethereum's Permissionless Network: A Blessing and a Curse

While financial markets on permissionless networks boast an absence of rules, this freedom can also contribute to dubious trading practices. Data, revealed Thursday by blockchain analytics firm Chainalysis, indicates that 54% of all tokens initiated on Ethereum$2,315 -2.42% in 2023 displayed trading behavior reminiscent of pump and dump schemes. Such schemes typically involve insiders manipulating the market for personal gain.

Limited Scope of Irregular Trading Activity

It should be noted that this activity is not prevalent, as these tokens only represented 1.3% of total trading volume on Ethereum's decentralized exchange network in 2023.

Ethereum's Permissionless Nature: A Double-Edged Sword

Ethereum's permissionless nature allows anyone to create an ERC-20 token with minimal effort, build a trading pool on a decentralized exchange like Uniswap, artificially create trading activity, and profit from unsuspecting bots that buy in. Upon making a sale, the original investors can withdraw their liquidity, making a profit.

Chainalysis and Its Investigative Tools

Chainalysis, known for providing crypto businesses and government agencies with tools to track illegal activities, cited one case where a single wallet seemed to launch 81 tokens and acquire over $800,000 in profits. It was noted that at least one of these tokens was involved in repeat wash trades, causing a removal of Ethereum liquidity from the token's decentralized exchange trading pool, a scenario also known as a rug pull. This left other traders stranded and unable to exit.

The Transparency of the Ethereum Blockchain

The transparent nature of the Ethereum blockchain records every trade openly, creating a digital trail that can be used to track suspicious activities. However, without more specific information, it is challenging to determine with certainty whether the activities are malicious or illegal, according to Chainalysis's Director of Research, Kim Grauer.

Deciphering On-Chain Data

Nonetheless, Grauer suggests that the data reveals widespread potential shenanigans that warrant further attention and study. She emphasizes the importance of educating people about this, highlighting that the name of the game right now is teaching people how to examine on-chain data for questionable activities.

Edited by Jonathan Stoker