According to blockchain analysis company Solidus Labs, there’s a high occurrence of insider trading prior to the listing of new ERC-20 tokens on centralized exchanges (CEXs).
Solidus Labs, in a report released on Wednesday, revealed that by analyzing data since January 2021, they identified unusual trading patterns suggesting insider trading in advance of major CEX listings for ERC-20 tokens in about 56% of the examined cases.
ERC-20 tokens, built on the Ethereum blockchain, are among the most frequently generated types of tokens.
It’s worth highlighting that ERC-20 tokens are typically available for trading on decentralized exchanges (DEXs) like Uniswap even before making their debut on CEXs.
DEX transactions allow users to trade without revealing personal identification details. This privacy feature provides an avenue for insiders to discreetly accumulate tokens ahead of a listing, information about which may not yet be available to the general populace.
Upon announcement of a token listing, it’s a common trend for the token’s price to surge. Insiders, having pre-emptively acquired these tokens, often capitalize on this price jump by selling their holdings, thus securing a profit.
Addressing this concern, Chen Arad, co-founder of Solidus and a former associate at Goldman Sachs, commented to Bloomberg, “If you can’t trust the legitimacy of more than half the tokens being listed, it undermines the efficacy of the market.”
He further emphasized the importance of addressing this issue, stating, “Rectifying this is crucial for propelling cryptocurrency to greater heights.”
From an examination of 234 ERC-20 token listing announcements, Solidus Labs identified questionable patterns in 411 trades, believed to be associated with over 100 insiders.
These listing announcements pertained to three of the globe’s most prominent cryptocurrency exchanges. The analysis further spotlighted over 50 entities that seemed to have engaged in dubious trades in close proximity to the token listing announcements on these exchanges.
The study underscored that a significant portion of this questionable activity was recurrent insider trading.
Market manipulation strategies, like insider trading, along with other tactics such as pump-and-dumps and wash trading, have historically been pervasive issues in the cryptocurrency arena.
Smaller, more centralized crypto projects are particularly vulnerable to such manipulative activities. In contrast, larger, more decentralized digital currencies like Bitcoin (BTC) tend to be more resilient against these malpractices.
