Blockchain analysis company Chainalysis has revealed that market manipulators may have raked in over $240 million (£188mn) in profits last year by artificially boosting the value of Ethereum tokens.

A crypto pump-and-dump is a market manipulation scheme where the price of a cryptocurrency is artificially inflated by a group to attract buyers – they often do this through off-hand marketing techniques like posing as chat participants in Telegram or using social media to hype up tokens with promises of guaranteed returns.

Then, once that token’s price peaks, the fraudsters sell off, causing rapid declines in the token’s value, leaving unsuspecting investors carrying the losses.

The Chainanalysis study focused on the 370,000 tokens launched through the Ethereum network between January and December 2023, with 168,600 available for trading on at least one decentralised exchange (DEX).

Chainalysis found that in any given month throughout the year, fewer than 14% of all launched tokens achieved more than $300 of DEX liquidity in the subsequent month. Additionally, less than 6% of tokens launched in 2023 currently surpass that liquidity threshold.

While some of this subdued market performance can be attributed to the challenging nature of the marketplace, Chainalysis suggests that fraudulent activity may also be at play.

The company identified tokens exhibiting characteristics associated with pump-and-dump schemes, including being purchased five times or more by DEX users without on-chain connections to the token’s major holders.

Furthermore, a single address removing over 70% of liquidity from the token’s DEX liquidity pool within the initial weeks of launch indicated potential market manipulation. Currently, these kinds of tokens exhibit a liquidity of $300 or less, pointing to a collapsed market after the liquidity removal.

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According to Chainalysis, 24% of Ethereum tokens and 54% of those listed on a DEX met the criteria indicative of pump-and-dump schemes. Although this accounted for only 1.3% of the total trade volume on Ethereum DEXes, it still amounts to profits in the region of $242 million for market fraudsters, according to Chainanalysis.

It should be noted that the $242 million figures takes in every potential instance of a pump-and-dump on the Ethereum network -individual tokens involved in this manipulation averaged just $2,600 in profit. Chainalysis, however, emphasised that such practices could undermine the entire market.