Web3 pump-and-dump schemes depend on hype, anonymity, and markets that aren’t regulated. To avoid costly traps, it’s important to know how they work.
What to remember
- In Web3, pump-and-dump plans change the price of a cryptocurrency by buying in bulk at the same time and spreading false information and hype to get investors interested before selling a lot of tokens at a low price.
- Because trading is decentralized and not controlled 24 hours a day, seven days a week, these dishonest investment schemes can easily take advantage of the industry.
- A pump-and-dump has four stages: the pre-launch of the token, the building of promotional hype at launch, the buying that drives up the price, and then a planned sell-off by orchestrators who take the money.
- Avoid falling for pump-and-dump schemes by not taking financial advice from people you haven’t asked for it, being wary of ads on social media, and staying away from schemes that promise huge returns in a short amount of time.
Pump-and-dump plans that work together have been a problem in the Web3 ecosystem and crypto market for a long time. People have called the digital world the “Wild West” because of the chance to make quick money. This has always drawn people who want to take advantage of people who trust false promises.
Because rules are always trying to catch up and the industry is not centralized, these schemes have often gone unnoticed by the police. But new attempts show that Web3 is no longer safe from government scrutiny. In October 2024, Operation Token Mirrors led to the seizure of $25 million and the charging of 18 people.
You will learn about “pump-and-dump schemes” in this article, including what they are, how they work, and how to avoid falling for these clever tricks.
Why do people use pump-and-dump schemes in Web3?
A pump-and-dump scheme is when the price of a cryptocurrency or blockchain product is changed on purpose. The price of these digital goods on the market is set by coordinated buying and spreading false information.
Once the leaders of the plan get the price they want, they start a violent sale to get their money. This means that all the other investors are left with tokens that have lost a lot of value or are useless. This process of “pushing up” the price of a token and then “dumping” both the token and the price at the same time is what the phrase means. The price of these assets never goes back up because they usually don’t have much value. This leaves innocent buyers stuck.
This is how pump-and-dumps work in Web3:
Web3 pump-and-dump plans usually have four steps: pre-launch, start, pump, and dump.
Pre-launch: To get things going, a new or low-value ticket is used to create a lot of buzz. This is done through pre-sales and building communities on Telegram, Discord, and X, among other places.
- Launch: Promotion takes a big step forward, and promoters are often used as unsuspecting influencers to get more people interested and raise notice.
- Pump: False or misleading information is getting around about possible big price hikes or business partnerships. The market price of the token goes through the roof as more and more people buy, driving up demand through the roof.
- Dump: The people who are manipulating the price of Web3 tokens sell off a lot of them when the price is high enough for them to make a lot of money. Because so many people are selling, the number of tokens is much higher than the demand, which makes prices drop. People who still have tokens can’t sell them until almost all of their value is gone.
Know what I mean? Pump-and-dump attacks can happen over and over on some coins. A study from the University of Bristol found that over the course of four years, the most-attacked coin was hit 98 times.
How to stay safe and spot crypto pump scams
It can be hard to tell the difference between Web3 trading manipulation schemes and a real, excited investment chance. Getting in early on the next big legitimate crypto token could pay off big time, which is great for people who are running illegal decentralized pump-and-dump schemes.
Here’s how to spot possible scams and well-organized crypto pump groups:
- Don’t invest in things you don’t know much about. If a stranger contacts you on social media or a messaging app and quickly turns the talk into an investment “sure thing,” be wary. Be careful and don’t get involved.
- Crypto social media ads: There are a lot of investment ads on social media sites that offer big returns. They might use fake news or make their businesses look like real ones to trick clients. Extra care should be taken with famous people who seem to be pushing Web3 projects. Deepfakes of well-known names are often made by manipulators without the owners’ permission or support.
- Do your own study: Don’t invest in situations where you feel like you have to act quickly because it’s “now or never.” As always, take your time with projects. You should learn about the company’s history, owners, developers, and track record. Investing shouldn’t be done if this is unclear or not enough.
- Spread your risk: Watch out for investments that offer big returns with little risk in a short amount of time. Definitely, don’t put all of your money into one investment. Instead, spread your money around to lower your risk and avoid losing money on investments that go bad in case the crypto market in Web3 is hacked.
dfdfd