Average potential crypto rug pull makes $2,600 in profit: Chainalysis

Last year was a lean one for crypto, but that didn’t put an end to rug pulls.

A report from Chainalysis today found that of all Ethereum ERC-20 tokens listed on DEXs in 2023, more than half met criteria for possible pump and dump schemes.

In a pump and dump, some illicit actor convinces investors to buy a token before selling a major share of the supply, collapsing the value and leaving those not in on the scheme holding the bag. In these schemes, scammers will sometimes wash trade, or buy and sell the same token, to create misleadingly high trading activity without any real change in ownership. This tactic artificially boosts the asset’s trading volume, giving the false impression that it is more in demand and potentially more valuable than it actually is.

Last year’s 90,408 possible ERC-20 pump and dumps identified by Chainalysis netted $241.6 million in profit for those draining the liquidity, amounting to a pretty paltry take rate for rug pullers — $2,672 per token dump.

To identify pump and dumps, Chainalysis found tokens that were traded at least five times by DEX users before a single address removed at least 70% of its liquidity, leaving the token with less than $300 in its liquidity pool. Put more simply, tokens investors traded before a whale sold their entire share, leaving holders with tokens they couldn’t sell.

Of note, Chainalysis analyzed cases that met these criteria but couldn’t prove that every instance was in fact a market manipulation scheme.

While the average pump and dump scenario earned the perpetrator little more than a couple months’ rent, some market manipulators were especially prolific. Chainalysis identified one wallet that orchestrated 81 possible pump and dumps grossing $830,000 in profit.

Pump and dump schemes tend to harm retail investors, and they’re a sticky part of crypto’s reputation that have led some regulators to sour on the asset class.

In August, the Securities and Exchange Commission convicted former New Jersey correctional officer John DeSalvo with fraud over a pump and dump scheme. DeSalvo marketed his Blazar token to law enforcement officers as a “crypto pension” and drew more than $600,000 in investment before selling billions of his own tokens and collapsing the enterprise, the US Attorney’s office for New Jersey said.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.