In-depth Analysis of Common Eyewash in the DeFi Field: Pump-and-Dump Exit

In the cryptocurrency industry, pump-and-dump schemes have become one of the most common forms of fraud. Although many cases have been exposed, there are still a large number of such eyewash schemes that remain undiscovered. Data shows that on Ethereum, a well-known public chain, and other mainstream public chains, there are at least 188,000 potential pump-and-dump schemes.

Distribution of Fraudulent Token Projects on Major Public Chains

Data indicates that approximately 12% of tokens on a well-known public blockchain show fraudulent characteristics, while around 8% of ERC-20 tokens on the Ethereum network exhibit signs of fraud. Additionally, about $910 million in ETH related to fraud was processed through centralized or regulated cryptocurrency exchanges. Furthermore, data from blockchain analysis firms shows that in October of this year, 11 DeFi protocols were attacked, affecting $718 million in crypto assets, setting a record for the highest monthly loss so far this year.

As one of the largest trading platforms in the crypto ecosystem, a well-known public chain's continuously expanding features and user base may be the main reasons attracting scammers and hackers. The platform seems to have realized the prevalence of smart contract scams on its network and has now integrated risk monitoring tools to detect risks in real-time and promptly alert users to potential risk projects, including pump-and-dump schemes and other eyewash.

Common Tactics of Pump-and-Dump Projects

Such projects are often referred to as "fraud tokens" or "DeFi scams". The project team carefully designs the code in the smart contract to steal funds from retail investors. The code design usually includes the following objectives:

1. Prohibit secondary market sales
2. Allow project developers to mint new tokens at will.
3. Charge the buyer a 100% sales fee

These malicious scripts are hidden in the token contracts, and once unsuspecting investors purchase them, they face significant risks. In most cases, these tokens appear to be no different from other normal cryptocurrencies and also adhere to the homogenization token standard of blockchain, but the real issues are hidden in the source code of the smart contracts.

As the cryptocurrency industry develops, fraudsters have gradually mastered the underlying technology, enabling them to make extensive modifications to smart contracts. They often hard-code malicious rules into smart contracts, not only granting themselves extra powers but also depriving buyers of their fundamental rights.

After the token is deployed, fraudsters will create a liquidity pool on decentralized exchanges, pairing their token with other "legitimate" cryptocurrencies. They will then artificially generate a large number of trades, exaggerating the token's value to attract the attention of retail investors.

Pump-and-dump project "packaging" tactics

In addition to the conventional methods mentioned above, such projects may also disguise their legitimacy through the following means:

1. Create fake websites and project development roadmaps
2. Promote false partnerships and display fake developer information.
3. Advertise on major social media platforms

When enough users purchase the tokens, the fraudsters behind the project will start a large-scale sell-off, exchanging the tokens for other mainstream cryptocurrencies. This large-scale sell-off in a short period of time will cause the token price to plummet to zero, completing the entire eyewash.

Common Types of Pump-and-Dump Token Fraud

Currently, there are three main types of pump-and-dump exits in the market:

1. Hidden Honeypot Vulnerability
2. Hide the unauthorized minting function
3. Set up balance modification backdoor

Honey pot vulnerabilities typically prevent ordinary investors from reselling tokens, while developers can sell freely. Investors may receive error messages and be unable to withdraw when attempting to trade. These types of eyewash often lead to a rapid short-term increase in token prices, enticing more unsuspecting users to buy.

The unauthorized minting function allows certain specific accounts to mint new tokens using hidden features in the contract. When fraudsters call this function, they can acquire a large number of tokens and sell them on the market, causing a significant drop in the value of the tokens held by other holders.

The balance modification backdoor is similar to the unauthorized minting function, allowing certain accounts to modify the token holders' balances. When these accounts set the holder's balance to zero, the victim cannot sell or withdraw, while the fraudster can remove liquidity or sell tokens to exit.

Conclusion

As the number of cryptocurrency eyewash continues to increase, investors need to be more cautious when choosing projects and comprehensively assess potential fraud risks. At the same time, regulatory agencies should intensify their efforts to combat these issues, protect consumer rights, and improve market integrity, transparency, and consumer protection standards. Only in this way can a healthier and more sustainable cryptocurrency ecosystem be built.