A new Chainalysis report has revealed that a majority of decentralized exchange (DEX) pools linked to fraudulent schemes are manipulated by their creators. This raises significant concerns among regulators about the current security and regulation in the DeFi sector.
How DEX Pools Are Exploited in Pump-and-Dump Scams
Pump-and-dump scams exploit the capability to manipulate token prices by artificially inflating their value before rapidly selling off assets. The report states that 89% of DEX pools are manipulated by their founders, who inflate token value before selling at artificially high prices. Another 11% of attacks are carried out by financially linked addresses.
Why Do So Many DEX Tokens Fail?
The primary reason for the failure of new tokens is short-term speculation. Many are created solely for pump-and-dump schemes and quickly lose value due to a lack of real-world applications and liquidity. The anonymity of DEXs allows scammers to operate without accountability, with only 1.7% of 2024's launched tokens remaining actively traded.
Regulatory Concerns Over DEX Scams & Wash Trading
Over $2.57 billion is tied to suspected wash trading, which creates the illusion of high trading volumes and attracts unsuspecting traders. Such manipulations may prompt regulators to enforce stricter measures on platforms facilitating fraudulent schemes, with calls for greater transparency and on-chain analytics tools to detect such activities.
The Chainalysis report exposes significant vulnerabilities in decentralized exchanges that require tighter regulation and increased transparency to protect investors. Ongoing frauds amounting to billions emphasize the need for improved security measures, auditing, and investor education.
