Clear DefinitionsPump and Dump Schemes
1 min read
Pronunciation
[puhmp and duhm skeemz]
Analogy
Pump and dump schemes are like hyping up a painting’s value at a gallery, then selling all shares when collectors rush to buy.
Definition
Coordinated manipulation tactics where actors inflate an asset’s price through false hype and then sell off at the peak, leaving other investors with losses.
Key Points Intro
Pump and dump schemes exploit hype to profit at the expense of uninformed participants.
Key Points
Coordination: often organized via chat groups or social media
False promotion: spread misleading information to drive demand
Sell-off: insiders dump tokens at inflated prices
Illegality: market manipulation is illegal in many jurisdictions
Example
A small altcoin’s community pumps its price on Telegram before insiders dump their holdings on unsuspecting buyers.
Technical Deep Dive
Automated bots place buy orders to create artificial volume; smart contract functions on DEXes can be manipulated by adding liquidity temporarily; on-chain analytics track suspicious token movements using heuristics like flash trades and wash patterns.
Security Warning
Participating in or following pump and dump schemes can lead to substantial financial losses and legal repercussions.
Caveat
Decentralized exchanges lack centralized oversight, making such schemes harder to detect and prevent.
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