New AI Tech From Two College Academics Can Filter Out Pump-And-Dump Schemes On Telegram With High Accuracy
Pump-and-dump schemes have plagued the financial industry for quite some time, so it should come as no surprise that cryptocurrency became a target. Hundreds of coins brought to the sector are inflated falsely, though this gives the first handful of buyers the opportunity to turn a profit. Investors that are less seasoned in the crypto space often can fall into believing that the rise in price is a long-term sign of success. However, the whole point of a pump-and-dump scheme is to temporarily drive up the price to sell, and the lack of knowledge about selling the coins is often what leads investors into an unfortunate predicament. Luckily, according to a report by The Next Web, there could be a solution.
Jiahua Xu and Benjamin Livshits, two academics from Imperial College London, have developed an AI-based protocol that uses machine learning. Essentially, this new system would help to find these schemes through Telegram channel, which is the platform that the students used to perform their research in the first place.
In their research, over 300 separate Telegram channels were evaluated for their content from July to November 2018. In the findings, the academics managed to locate 220 separate “pump events,” which were organized directly on Telegram. Based on their discovery, the twosome managed to figure out an algorithm through AI that would show how likely a coin is to be pumped beforehand.
The information they found was almost alarming, finding over 100 Telegram channels that used these types of schemes to pump and dump coins that aren’t as popular as others with a frequency of about twice daily, on average. Xu and Livshits surmised that about $7 million was done in artificial trading each month, adding up to over $80 million yearly.
One of the coins that received special attention was pumped through the “Official McAfee Pump Signals” channel. This channel is home to 12,000 members, which follow along to get the profits they hope for. On November 14th, for example, the channel announced the BVB as their target coin. The coin was setup by a football club and has been dormant since 2016.
When the announcement for this token was made, members started purchasing at 35 satoshis ($0.0014), and it reached a peak of 115 satoshis ($0.0045) within barely minutes. It only took 3.5 minutes from the pump opening to go back below the original purchasing price. Even though these low amounts may seem like nothing to worry about, the face that they could add up to $7 million in a single month should indicate that how often this is happening.
After collecting all of these details, both academics took into account market data, like the market cap, price, and other details, of the “pump” targets found. They ended up finding several factors that were mutual traits amongst the discovered schemes and developed a protocol. Simply put, the protocol looks for trading that exceeds the typical trade volume for small coins.
The researchers taught the AI tech how to look for these details, and which to watch out for, before launching it. Within the time between October 30th and November 6th, suspicious activity was located six times, of which five were accurate.
To see how much this technology can do, there will be much more data needed, especially considering that a pump-and-dump scam doesn’t always show up the same way. Now, as The Next Web puts it, there’s a small “dilemma.” The algorithm presently is showing an 80% accuracy, noting that there’s a chance of an 80% return in 21 days for users. While the algorithm could be a way for users to protect themselves from market manipulation, but it depends on if the creators want to offer it commercially or benefit themselves alone.