Meme coin launchpads enable large-scale cryptocurrency price manipulations
Meme Coin Factories: Uncovering Large-Scale Manipulations on pump.fun
Cryptography and Security
Summary
Creating new cryptocurrencies is now easy, thanks to platforms like pump.fun. However, these platforms have been used by bad actors to trick people by quickly raising and crashing coin prices for profit. The authors studied 15 million coins on pump.fun and found five main tricks used, including fake trades and social media lies. They also discovered that some tools let anyone do these tricks without tech skills. The paper ends with suggestions to protect traders and improve the system.
What this means in practice
- •For cryptocurrency traders: Identify suspicious trading patterns on launchpads to avoid manipulated meme coins and reduce financial losses.
- •For blockchain security teams: Develop tools to detect and flag automated and coordinated manipulations directly on the blockchain for enhanced market integrity.
Authors
Nicolas Szwajcok, Taro Tsuchiya, Enze Liu, Kyle Soska, Mathias Payer, Nicolas Christin
Abstract
Once complex, creating and deploying a new cryptocurrency has become trivial. Coin launchpads now allow users to generate a new coin with merely a few clicks, at a minimal cost. Launchpad popularity has grown in tandem with the rise of "meme coins," which usually do not offer any novel technological properties and are purely created for fun. The most prominent coin launchpad, pump.fun, has gained significant traction, grossing over 100 million USD in daily trading volume. The mass adoption of coin launchpads, however, also enables strategic actors to easily manipulate trading signals, unbeknownst to inexperienced traders who then buy certain coins, and enable these strategic actors to profit from rapid and unsustainable price increases ("pumps"). To identify such manipulations at scale, we conduct a large-scale study of pump.fun, collecting information on all 15 million coins launched in the last two years, and performing analysis on large, random samples of transaction data. We identify five classes of manipulation strategies: 1) wash trading, 2) creator address obfuscation, 3) coordinated sell, 4) copycat coins, and 5) social media manipulation. We find that strategic actors often bypass the platform interface and implement these strategies in a highly automated and low-latency fashion, by interacting directly with the blockchain. We further uncover the existence of "Market-Manipulation-as-a-service (MMaaS)," third-party tools that enable users to perform these manipulations without any technical expertise. We conclude by devising mitigations and proposing recommendations for traders, pump.fun, wallets or chain scanners, software development platforms, and regulators.