• Chainalysis released a report that showed 25% of tokens introduced in 2022 were scams.
• Many of these tokens were part of pump-and-dump schemes which involve artificially inflating prices and then running off with the money.
• The ease with which bad actors can launch new tokens and remain anonymous makes pump-and-dump schemes easy to pull off, hurting the reputation of crypto investment.
Chainalysis Report on Fake Tokens
Chainalysis, a blockchain analysis firm, released a report that revealed roughly 25 percent of digital tokens introduced in 2022 were scams designed to make off with investor funds. This was largely due to pump-and-dump schemes, wherein developers or executives talk up a token to get investors interested, causing the price to rise artificially before they run away with the profits.
How Pump and Dump Schemes Work
Pump and dump schemes are typically orchestrated by talking up a token and getting investors interested through fear of missing out (FOMO). Eventually, so many people invest in it that its price reaches an all-time high before those behind it shut down the operation and run away with their profits. It’s an unethical practice that sees innocent traders losing out due to malicious greed.
Ease Of Pulling Off Schemes
According to Chainalysis‘ statement, teams launching new projects and tokens can remain anonymous, making it easier for serial offenders to carry out multiple pump and dump schemes. In addition, launching new tokens is relatively easy compared to other markets which helps fuel this type of fraud.
Effect On Crypto Industry Reputation
The company explained that pump and dump schemes have been damaging for the reputation of cryptocurrency as many believe mass adoption is on the horizon but may be hampered if people view crypto investments as rife with such scams designed at taking advantage of newcomers.
Red Flags To Look Out For
The report recommends keeping an eye out for red flags when investing in digital assets such as seeding initial trading volume or controlling circulating supply. It also emphasizes staying vigilant against any attempts at manipulating prices or engaging in activities which could damage public perception about crypto investments.