Crypto Pump-and-Dump Schemes Surge on Unregulated Web3 Market

Coordinated pump-and-dump schemes in the Web3 ecosystem continue to exploit the decentralized and largely unregulated nature of the cryptocurrency market. These schemes manipulate the price of digital assets through misleading information and hype, often resulting in significant losses for unsuspecting investors [1]. Orchestrators of these schemes typically operate in privacy-focused communication channels and leverage platforms like Telegram and Discord to build community support and promote tokens before orchestrating a mass sell-off once prices peak [1].

The structure of a pump-and-dump scheme usually follows four distinct stages: pre-launch, launch, pump, and dump. During the pre-launch phase, hype is built through pre-sales and community engagement. The launch stage sees increased promotion, often involving influencers or social media campaigns. The pump stage involves spreading fake news or fabricated partnerships to drive up demand and price. Finally, the orchestrators sell off their holdings at the peak, causing the token's value to plummet and leaving investors with nearly worthless assets [1].

The decentralized and 24/7 nature of Web3 trading exacerbates the vulnerability of the market to such manipulation. With over one million tokens launched in 2024 alone via platforms like Pump.fun, the ease of token creation makes it increasingly difficult to track and regulate fraudulent activity [1]. Some tokens have even been targeted for repeated pump-and-dump attacks, with one case documenting 98 such manipulations over a four-year period [1].

Regulatory efforts have started to show progress, albeit slowly. In October 2024, Operation Token Mirrors led to the seizure of $25 million and 18 individuals being charged, signaling growing enforcement capabilities in the Web3 space [1]. However, many of these schemes remain under the radar due to the anonymity and lack of oversight in the industry.

For investors, protecting against these schemes requires vigilance and due diligence. Unsolicited investment advice from unknown sources should be treated with skepticism. Social media ads promising high returns often use deepfakes or impersonate high-profile figures to mislead users. Investors are advised to conduct thorough research into project founders, developers, and track records before committing funds. Additionally, spreading risk across multiple investments rather than concentrating capital in a single token can help mitigate potential losses [1].

Source: [1] How fake news and deepfakes power the latest crypto pump-and-dump scams (https://coinmarketcap.com/community/articles/6890f9d9db840933c477ae9f/)