Market manipulators may have made over $240m last year by artificially inflating the value of Ethereum tokens, according to Chainalysis.

The blockchain analysis company investigated the 370,000 tokens launched on Ethereum between January and December 2023, 168,600 of which were available to trade on at least one decentralized exchange (DEX).

It claimed that, in any given month last year, fewer than 14% of all tokens launched achieved more than $300 of DEX liquidity in the subsequent month, and fewer than 6% of tokens launched in 2023 are “currently above that threshold.”

While this can be explained in part by the fact that it is currently a tough marketplace to make money from, some of this activity may be fraudulent, Chainalysis argued. The firm looked for tokens that satisfied three criteria linked to pump-and-dump scheme activity:

• The token was purchased five times or more by DEX users with no on-chain connection to the token’s biggest holders, showing it gained market traction
• A single address removed more than 70% of the liquidity in the token’s DEX liquidity pool, indicating that the biggest holder dumped the token. In most cases, the address removed the token’s liquidity within the first few weeks of launching
• The token currently has a liquidity of $300 or less, indicating that the market collapsed following the removal of liquidity

Chainalysis claimed a quarter (24%) of Ethereum tokens and 54% of those listed on a DEX met the above criteria. Although this only accounted for 1.3% of total trade volume on Ethereum DEXes, it may have garnered market fraudsters as much as $242m in profits.

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Despite the high headline figure, individual tokens subject to this market manipulation produced an average of just $2600 in profit. That said, the practice could undermine the market as a whole, Chainalysis argued.

“Market manipulation, such as pump-and-dump schemes, are destructive to the crypto markets in the same way they are to traditional markets. However, cryptocurrency’s inherent transparency provides an opportunity to build safer markets,” it concluded.

“Market operators and government agencies can deploy monitoring tools that can help identify and prioritize areas for further investigation in a way that wouldn’t be possible in traditional markets.”

Pump-and-dump schemes typically involve individuals or groups heavily promoting a token/stock to drive up the price, before selling at a significant profit. This often results in a heavy decline or even collapse of an asset’s price, impacting unsuspecting holders.