Crypto Pump-And-Dump Schemes And How You Can Protect Yourself From Being Misled

A pump-and-dump is an orchestrated crypto investment fraud that involves misleading investors into purchasing artificially inflated tokens — typically marketed and hyped by paying celebrities and social influencers. We have seen this all the time with cases from Elon Musk, Logan Paul, KSI and so many other influential people hyping up crypto coins.

Andrew Thurman, an expert on DeFi, NFTs, DAOs from Nansen.ai shares an example of a  crypto pump and dump scheme that happened recently and how you can protect yourself from one.

Sometimes, crypto coin prices tend to be down, but unlocks from early-stage investment vesting schedules are escalating the problem, with major funds pouring millions into already-depressed assets.

Let's look at a recent example with $BETA and analyze how you can protect yourself:

Andrew says that in late June $BETA, caught his eye at the top of the Smart Money inflow dashboard. $Beta is the permissionless money market for borrowing, lending, and shorting crypto assets. It's a lending marketplace that’s very exciting to experimental lenders — a vertical where there's still a lot of innovation to be conjured.

Smart Money inflows made it stand out even in a bear market but it turned out that the inflows were from a vesting unlock.

Checking the Top Transactions dashboard, the Beta Finance Multisig sent nearly 35 000 000 tokens worth $4 200 000 to the deployer, which then sent them to a dozen investors.

The investors line up with a fundraising press release from 2021:

The Fall

The 0xngmi dashboard showed that ever since the release of $Beta, their prices have been falling and flattening out. So could the big funds/ investors be losing their money the funds or did they dump after creating the pump?

We are going to analyze each of the top investment funds and see if they really held on or if they dumped.

1. Spartan Group

The Spartan Group received 6 000 000 tokens and has stayed calm! According to Apeboard.Finance, they haven't been active since April, despite receiving a ton of unlocks.

We can say that the Spartan Group has been "holding". A crypto term for investors who buy and hold indefinitely. (It implies not selling when markets go down or become volatile.)

2. ParaFi Capital

6 hours after ParaFi Capital receiving 6 000 000 tokens they transferred to another labeled address. They have been transferring the tokens in batches of 700 000 to a couple of unlabelled wallets before finally ending up in a Binance deposit address, presumably to dump.

This is a perfect example of a partial dump.

3. Sequoia India

Andrew’s analysis shows that Sequoia is another hardcore holder's wallet, with no user-side movement since October, 2021. These guys have been hodling ever since then.

4. Delphi Digital

Delphi Digital did sell their December and March unlocks in May 2022, transferring to an unlabeled wallet before sending them to Binance. By the time of this analysis, they were yet to sell 2 500 000 tokens. So they have been dumping slowly.

5. Multicoin

Multicoin, just like Delphi, has yet to transfer the May unlock to exchange, but their December and March unlocks ended up on Binance within a few days. So they are also dumping slowly.

6. DeFiance

DeFiance transferred to Binance within 15 minutes of this latest vest in March. It took them under an hour, making them the real maestros of the dump. This is a top-tier dumper move.

7. Three Arrows

While Three Arrows didn't dump in a few minutes like DeFiance, they dumped everything in a day by also sending the tokens to Binance.

Andrew says that 5 of 7 funds are dumping all or part of their $Beta unlocks, and some are racing to do it.

He personally decided not to do further due diligence on $BETA based on this, and will be looking at unlocking dumps as a metric in the future, particularly on tokens that he is bullish on like $LDO.

There are some ecosystems where these ongoing dumps will be especially brutal. This infographic below shows how low the circulating supply is on some tickers.

There's a lot to unlock and dump, which is to say much lower to go.

What's especially wild is that some of the dumpsters openly acknowledge this! There are zombie projects out there whose primary purpose is to be a front for a dump-able ERC-20. However, you can protect yourself from such schemes using the Nansen.ai platform.

How to Protect Yourself from Crypto Pump and Dump Schemes:

To be honest, it's really difficult to notice such pump and dump schemes from the get-go unless you are using an automated tool that tracks down all the transactions on the database of each new token. The Nansen tool, which is a blockchain analytics platform that combines on-chain data with a massive and constantly growing database containing millions of wallet labels has the ability to trace such moves so that you can red flag them and save yourself from investing in dumps.

With Nansen.ai, all you need to do is to set up Smart Alerts to monitor token movements from the deployer’s address. This can help you watch dumps more often, especially for high FDV and low unlock ecosystems.

Andrew says that In May, a Nansen.ai member used Smart Alerts to monitor $UST Curve withdrawals. He ended up front-running the worst of the depeg and saving millions.

Smart alerts are available to Standard plan subscribers and above, so you can subscribe to the platform today to avoid getting dumped on.

Conclusion

Pump and dump schemes are more frequent these days than ever. The orchestrators of such schemes take advantage of people's FOMO which makes people rush into buying crypto without proper research.

We recommend everyone to do proper homework and research before investing in any coin. You should also be wary of any influencer you follow who hardly mentions cryptocurrency and randomly begins promoting a token. If you're going to take financial advice, take it from a professional, instead of someone who is famous for being good at video games.  

Lastly, if you're still interested in investing, then don't invest more than you're willing to lose. It's possible that with the right timing, an investor could make money off a pump-and-dump, but it's better to assume that the money you're using to buy tokens will be gone forever.