Cryptocurrency Pump and Dump Scheme is a fraudulent behavior that profits from artificially manipulating market prices. Its essence is to achieve rapid arbitrage by taking advantage of information asymmetry and group psychology. For example, in October 2024, the market value of SHAR token soared to $60 million within 8 hours through KOL false advertising, and then the price plummeted by 96% due to the sale of 50% of the tokens by the market makers, causing heavy losses to over a thousand investors. This model is being effectively curbed through technical monitoring and regulatory collaboration in compliance platforms such as HashKey Exchange .
Technology-driven manipulation mechanism
The core of pulling and smashing stocks relies on a multi-platform collaborative dissemination network.
- Telegram group: Organizers send "insider information" in batches through robot accounts, such as "a certain coin will skyrocket by 300%", and forge transaction screenshots to create panic buying. A certain group once attracted 23,000 members within 15 minutes, causing the token price to rise by 47% in a short period of time.
- X platform (formerly Twitter) : KOLs publish misleading analysis through "shouting orders" (Hype), and expand the spread with hashtags such as #crypto and #altcoin. In the 2024 SEC account hacking incident, false ETF approval news caused the Bitcoin price to fluctuate by more than $2,000 within 10 minutes.
- Discord channel : Administrators control the direction of discussion through the "mute + spam" mechanism, block questioning voices, and use anonymous identities to evade responsibility.
Manipulators often use the covert selling mechanism of ERC-20 tokens: when the token price reaches a preset threshold (such as a 200% increase), the smart contract automatically sells the tokens held by the manipulator to the DEX liquidity pool, while creating false trading volume through flash loans to maintain the price illusion.
II. Operation mode and typical cases
- During the absorption phase , the market makers buy tokens at low prices in batches through decentralized exchanges (DEX) and use mixers (such as Tornado Cash) to cover up the flow of funds. The market makers of the SHAR project collected 665.60 million tokens through 16 wallets within 24 hours, accounting for 66.56% of the total supply.
- Pulling stage : Use false news (such as "an institution is about to invest") and KOL endorsements to create market heat. In the SEC account hacking event in January 2024, the false ETF approval news caused Bitcoin to rise by 6% in a short period of time, and then plummeted by 4%. The 24-hour liquidation amount reached $225 million.
- Selling phase : The dealer sells the tokens in batches through smart contracts, while hedging the risk of short positions in the derivatives market. When Bitconnect collapsed, the core team transferred tokens worth $1.20 billion through offshore companies, causing investors to suffer heavy losses.
Emerging manipulation modes combined with multi-chain features:
- Cross-chain liquidity siphon : Synchronously pulling up prices on chains such as Ethereum and Solana, using cross-chain bridges to transfer funds to create the illusion of multi-chain prosperity. A certain DeFi project attracted more than 50 million dollars in funds within 3 days through this method, and then cross-chain selling caused the prices of multi-chain assets to fall.
- NFT and token bundling manipulation : Publish tokens tied to popular NFTs drive token demand by speculating on NFT prices. A PFP project falsified blue-chip NFT holder position data, causing the associated token price to rise by 800% before selling, making a profit of over 30 million dollars.
III. Regulatory compliance and risk prevention
The Onchain AML platform deployed by HashKey Exchange in collaboration with OKLink is accurately monitored through the following Technology Implementations:
- Address clustering analysis : Identify associated wallets (such as token aggregation behavior of 104 wallets in the SHAR project) and mark them as high-risk transactions.
- Transaction Pattern Recognition : Using Machine Learning models to detect abnormal transactions, such as over 50% of tokens flowing into a single address in a short period of time.
- Public opinion monitoring : capture social media keywords, combined with on-chain data warning of potential manipulation events.
The head platform adopts a triple defense mechanism.
- Trading Restrictions : Set daily limit (e.g. ± 10%) on newly listed tokens to prevent drastic price fluctuations.
- Smart Contract Audit : Mandatory requirement for project parties to publicly disclose contract code, and organizations such as CertificK will detect hidden selling logic.
- Fund custody : HashKey Exchange stores 98% of users' assets in cold wallets and cooperates with Aon Insurance to reduce systemic risk.
The Hong Kong Securities Supervision Commission requires exchanges to:
- Conduct compliance review on KOL promotion content and prohibit false advertising with promised benefits.
- Establish an investor protection fund to partially compensate for losses caused by manipulation.
- Regularly issue risk warnings, such as the 2024 SEC special project warning against social media manipulation.
The essence of cryptocurrency pulling and smashing is a combination of technical abuse and human greed. HashKey Exchange has increased the block rate of manipulation events to over 92% through on-chain monitoring, smart contract auditing, and compliance education, which not only ensures market fairness but also protects the rights and interests of investors. In the era of Web3.0, understanding the technical logic and prevention measures of such fraud is a required course for participating in digital asset investment.