• According to Chainalysis, 25 percent of the digital tokens introduced in 2022 were scams.
• These tokens showed signs of being pump-and-dump schemes, which involve developers or executives talking up a token and getting investors interested before running off with the cash.
• Pump and dump schemes can be destructive due to how easily new tokens can be launched and the social media-driven nature of crypto investment news and discussion.
Chainalysis Report on Fake Tokens
Overview
A recent report from blockchain analysis firm Chainalysis shows that nearly 25 percent of the digital tokens introduced in 2022 were scams designed to make off with investor funds. These tokens showed signs of being pump-and-dump schemes, which involve developers or executives talking up a token and getting investors interested before running off with the cash. Pump and dump schemes can be destructive due to how easily new tokens can be launched and the social media-driven nature of crypto investment news and discussion.
What is a Pump & Dump Scheme?
Pump and dump schemes involve developers or executives talking up a token and getting investors interested before running off with the cash. This involves creating fear of missing out (FOMO) among potential investors in order to get them to plunk their money into the token after its price has risen to an artificially high level. After this, the developers behind the asset stop minting it, shut down operations, and run off with all the money they have made.
Why is this Problematic?
The problem lies in how easy it is for bad actors to launch a new token by seeding initial trading volume and controlling circulating supply while remaining anonymous. This allows serial offenders to carry out multiple pump & dump schemes without consequences, ultimately leading people to view cryptocurrency as rife with malicious scams designed to take advantage of newcomers. Such negative perceptions could prevent mass adoption from occurring as cryptocurrency approaches an inflection point.
Red Flags for Spotting Scams
Unfortunately, it can be difficult for unsuspecting traders to spot these types of frauds even though there are some red flags that could clue them into what’s going on: if a project seems too good to be true; if there are suspiciously high trading volumes; or if there are sudden marketing campaigns promoting a project shortly after its launch that could indicate something fishy is going on behind closed doors.
Conclusion
In conclusion, pump & dump schemes have become increasingly common in cryptocurrency due to its relative ease with which bad actors can pull them off while remaining anonymous – making it crucial for traders stay vigilant when investing in any digital asset as they could potentially fall victim to malicious greed without realizing it until it’s too late