Perseus: A tool for tracking the coordination of pump-and-dump crypto coin schemes

A team of computer scientists and financial specialists at University College London has developed a tool to track the coordination efforts of pump-and-dump crypto coin scheme manipulators.

A team of computer scientists and financial specialists at University College London has developed a tool to track the coordination efforts of pump-and-dump crypto coin scheme manipulators. As the researchers report in a new paper published on the arXiv preprint server, they have created a tool called Perseus that is capable of scanning messages on the messaging app Telegram to detect and follow the hyping activities of crypto traders.

The price of cryptocurrencies has been subject to massive swings in recent months, and with no regulation in place, investing in them remains a risky endeavor. However, a new study by researchers at University College London (UCL) has shed light on the coordinated efforts of manipulators to inflate the prices of crypto coins through a strategy known as "pump and dump" schemes.

Their findings, published on the arXiv preprint server, highlight the role of a messaging app, Telegram, in facilitating these schemes. The researchers explained that crypto traders use chats on Telegram to coordinate their activities, with a smaller number of "masterminds" fabricating hype that is then amplified by a larger group of "accomplices."

To investigate these activities, the research team developed a system capable of reading messages sent between buyers and sellers on Telegram and analyzing them. Their analysis revealed that on average, each masterminded pump-and-dump scheme involved around 730 accomplices, focusing on a single crypto coin for a period of two to three days.

The researchers detected a total of 438 masterminds, who were collectively responsible for approximately $3.2 trillion in artificial crypto coin trading over 18 months. These masterminds, in turn, reaped an average annual profit of $250 million from their manipulations.

The ease with which the masterminds could generate large-scale price movements with minimal capital was a key finding of the study. This ease of manipulation, the researchers warned, could have significant implications for the stability of the crypto market.

"The masterminds' capital gain is minimal compared to the total trading volume they generate, highlighting the potential for significant instability in the crypto market if these activities continue unchecked," the researchers said.

The researchers also noted that the masterminds' actions could deceive smaller investors who might be misled by the hype and ultimately lose money.

"We observe that the masterminds' messages on Telegram typically boasted of their ability to generate large-scale price movements with minimal capital, which might deceive smaller investors and ultimately destabilize the market," they added.

The researchers concluded that their findings underscored the need for regulatory action to prevent the manipulation of crypto markets by pump-and-dump schemes. Without intervention, they said, the market could collapse under the weight of deception, leaving behind a generation of defrauded investors.

Their findings are described in a new paper titled "Perseus: Tracing the Masterminds Behind Cryptocurrency Pump-and-Dump Schemes."