About 440 people are responsible for trillions of dollars in artificial trading, according to a new study published on Cornell University’s server arXiv.
Researchers Honglin Fu, Yebo Feng, Cong Wu, and Jiahua Xu have developed a tool called PERSEUS to track the infamous pump-and-dump schemes in the crypto industry. They observed the so-called ‘spreaders,’ who can be divided into ‘masterminds’ and ‘accomplices’ based on their role in the scheme.
More specifically, they sought masterminds: the entities that organize, coordinate, and orchestrate these schemes. A pump-and-dump scheme is a form of trade-based manipulation where holders artificially inflate a coin’s price – usually through false hype and praise – to convince people to buy in, only to dump the coins and crash their prices.
This manipulation undermines market integrity and causes significant financial losses for investors, the researchers say.
According to the report, the authors are the first to investigate the masterminds of cryptocurrency pump-and-dump. They deployed PERSEUS from 16 February to 9 October 2024. The tool successfully detected 438 masterminds “who are efficient in the pump-and-dump information diffusion networks.”
Source: Tracing the Masterminds Behind Cryptocurrency Pump-and-Dump Schemes
Furthermore, PERSEUS found these 438 masterminds across 322 cryptocurrencies. The distribution of masterminds across cryptocurrencies varies, however.
Of these, a single masterminded is targeting a whopping 192 cryptocurrencies. Two masterminds are targeting 72, and three are after 23 cryptos.
“Remarkably, four masterminds target the following cryptocurrencies: AAVE, ATOM, BAKE, BCH, COTI, FIL, and LINK,” says the report.
However, the most frequently targeted coin is Bitcoin (BTC) with five identified masterminds.
Source: Tracing the Masterminds Behind Cryptocurrency Pump-and-Dump Schemes
Meanwhile, to reach these conclusions, the tool has processed “an unprecedented dataset” of crypto pump-and-dump schemes from 2,103 channels. In comparison, the previous studies examined between 50 to 700 channels.
During the PERSEUS deployment period, masterminds had a massive impact on the market, says the report. They drove a 167% increase in trading volumes.
Notably, “the total crowd-pump trading volumes reached $8.07 trillion, compared to an estimated $4.83 trillion in regular trading, increasing by $3.24 trillion (67%),” the authors concluded.
Telegram is the Pump-and-Dump Hub
PERSEUS locates masterminds, as they are at the source of crowd-pumps, thus providing regulators with a clarification on the risk they pose, as well as oversight capabilities to mitigate these schemes, the authors note.
The report notes that pump-and-dump manipulators stole $241.6 million through decentralized exchanges (DEXs) in 2023 alone. This accounts for 10% of the total trading volume compared to centralized exchanges (CEX).
“This highlights the more substantial impact of pump-and-dump activities on centralized exchanges, drawing the attention of regulators,” the authors write.
That said, PERSEUS successfully identified 290 masterminds involved in pump-and-dump activities, between February and October 2024, “potentially reducing the related trading volume impacts by approximately $3.24 trillion.”
Moreover, previous research has already shown that Telegram is home to most pump-and-dump groups. PERSEUS – which collects real-time data from the OSN and crypto markets – monitored 2,103 Telegram channels and 660 cryptos between April 2018 and February 2024.
The report concluded that the scammers massively exploit online social networks (OSNs). These OSN entities, including Telegram and Twitter accounts, chatbots, and others, are spreaders. They distribute pump-and-dump messages and coordinate investors to buy specific crypto collectively through exchanges.
Subsequently, as a result of these coordinated purchases, the price of a coin is artificially inflated. Therefore, some early investors can sell their holdings for profit. Most see large losses.
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