Researchers have published evidence of what they claim is a coordinated pump and dump manipulation involving the Chainlink (LINK) token — the native cryptocurrency of Japanese messaging giant LINE’s service-oriented blockchain.
A blog post published on Sept. 11 by AnChain.Ai researchers contains an analysis of apparently suspicious LINK token transactions between April 1, 2019, and July 26, 2019.
Pump and dump: an overview
Pump and dump is the name given to a type of microcap fraud, in which the price of an asset — frequently one with low market capitalization and share volume — is manipulated by a coordinated rush of high-volume purchases by a group of actors working in complicity.
The surge in purchases artificially inflates the asset’s demand, pushing up its price and reeling in unwitting investors: the high-volume purchase strategy is often accompanied by circulating positive “expert” or official statements and/or recommendations online in a bid to further lure in casual traders.
At the end of the scheme, the manipulators dump their tokens — overwhelming organic demand and causing the asset’s price to plummet, leaving victims with devalued holdings. The researchers note:
“Cryptocurrencies tend to be exceptionally vulnerable to this form of attack, as coins are often heavily concentrated in the hands of a comparatively small number of individuals, whose market activities can dramatically impact the coin price.”
Alleged 2019 LINK pump and dump manipulation
An.Chain has published a detailed timeline, which includes links to several apparently implicated tweets, the date of LINK’s listing on crypto exchange Coinbase, and a tracing of the asset’s price movements — from $1.19 on June 13 to $4.45 by June 29, before beginning to drop on July 2 to $3.73.
An.Chain outlines the parameters it used to identify an apparently coordinated group of addresses it believes to be behind the spike in purchases, their interactions and strategies — such as the use of multiple jump addresses to mask the token flow.
The post further outlines how Ether (ETH) gas fee traces can be analyzed to reveal that “that all the ETH sent to the jump addresses are sourced from mining nodes.” “This is a sophisticated tactic that hides the player’s real address,” the researchers note.
An.Chain concludes by arguing that the prevalence of thin markets in the crypto sector can make it vulnerable to manipulation and that further diligence is crucial to the sector’s future.
Yet they also point to the immutable properties of blockchain technologies, which permits a detailed analysis of marketplace activity and network interaction — allowing investigators to construct a directory of key addresses, affiliations and transaction pathways that are valuable from a surveillance perspective.
Last month, fresh research pointed to the apparently prevalent use of arbitrage bots for manipulative profit-making strategies on decentralized exchanges.
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