What’s Really Going On with Solana? Unpacking Pump-and-Dump Schemes and Activity Reporting Concerns
Solana
Solana is in the eye of a growing storm. Not only does the Solana blockchain suffer from pump-and-dump schemes, there are also serious concerns about the accuracy of activity numbers reported by the Solana blockchain. All this while the blockchain is reporting some serious (unhealthy?) growth.
Let’s have a look at was is going on in the Solona blockchain…
Pump-and-Dump Schemes on Solana
Solana has seen a huge rise in the number of memecoins or shitcoins, particularly due to its high throughput and low transaction fees, which make it attractive for new and smaller token projects. Notable memecoins on Solana include Bonk (BONK), Samoyedcoin (SAMO), and Dogwifhat (WIF).
They go very often hand in hand with pump-and-dump schemes which typically involve orchestrators who accumulate a large number of tokens at a low price. They then artificially inflate the token’s value through aggressive promotion and hype, often leveraging social media platforms and online communities. Once the price peaks, they sell off their holdings, causing the price to plummet and leaving later investors with significant losses.
And it seems ridiculously easy to fake things. Below is a user who effortlessly conjured up 60 wallets, or “users”, in an instant. The platform used here is Pump.Fun Platform allowing easy creation and trading of new tokens.
What you see on Pump Fun is not what you think it is:
— Antoine Rousseaux (@AntoineRSX) July 14, 2024
This is how I fake:
– The # of holders
– The bubble map
– The volume pic.twitter.com/XmoMb70y96
Recent Incidents on Solana
FTX and Alameda Research: FTX and its sister company, Alameda Research, had significant exposure to Solana. During FTX’s bankruptcy proceedings, it was observed that a substantial amount of Solana tokens were moved to centralized exchanges, sparking suspicions of a pump-and-dump scheme. Despite low trading volumes, Solana’s price surged by over 80%, leading to community speculation about price manipulation to facilitate a favorable exit for FTX.
Celebrity-Endorsed Tokens: Another example involves celebrity tokens launched on Solana. Prominent figures like 50 Cent and Andrew Tate endorsed these tokens, prompting fans to invest. However, the majority of these tokens saw their values crash by over 99%, indicating classic pump-and-dump dynamics where early promoters capitalized on the hype before abandoning the project.
Manipulation Techniques
The rigging of figures in pump-and-dump schemes primarily involves artificially inflated trading volumes and prices. This manipulation creates a misleading perception of the token’s value and demand. Common tactics include:
Bot Usage: Developers and orchestrators often use bots to create the illusion of demand. These bots make the first purchases, giving the false impression that the token is community-owned and in high demand. This tactic deceives retail investors and inflates the token’s value artificially.
Insider Activity: Insiders or developers might secretly sell their tokens while publicly promoting the project. This hidden selling activity undermines investor confidence and can lead to sharp price declines once the insiders have liquidated their holdings.
False Promotions: The previous point also includes extensive marketing and fake endorsements from celebrities or influencers trick investors into believing in the token’s potential.
Coordinated Buying and Selling: Orchestrators and their bots perform coordinated trades to push the price up and then rapidly sell off at peak prices.
Concerns About Solana’s Activity Reporting
There have been some serious concerns about the accuracy of activity numbers reported by the Solana blockchain, especially in light of its significant growth and recent controversies.
DBCrypto even goes as far as saying that Solana has no future at all. In the below video you will learn about the fake metrics, VC control, and why Solana may not have a bright future ahead. Check out the very informative episide posted a few days ago.
Reported Network Performance
The Solana Foundation has emphasized the network’s high reliability, reporting a 99.94% uptime over the past year. However, occasional outages, such as the one on February 6, 2024, caused by a bug, have raised questions about its operational transparency. Despite these issues, the Foundation maintains that these disruptions are minimal and that overall network performance remains strong.
Activity and Transaction Numbers
In Q1 2024, Solana reported unprecedented growth, with daily active addresses reaching new highs. For instance, on January 31, 2024, the network recorded over 884,000 active addresses. Additionally, daily transaction volumes fluctuated but remained robust, with huge spikes due to high-interest activities like airdrops and new token launches.
Discrepancies in Reporting
The booted Solana validators lost 99% of their stake!
— St₳ke with Pride 🌈 SPO & DRep (@StakeWithPride) June 10, 2024
90% of Solana validators are subsidized by the Solana Foundation in perpetuity. This is not boot strapping.
They are all KYCed and required to follow rules.
Is this decentralization theatre? #Solana pic.twitter.com/iQ7LYTuzWe
Despite these impressive numbers, some analysts and community members have questioned their validity. Criticisms often focus on the possibility of inflated transaction counts and manipulated activity metrics. These suspicions are bolstered by reports of coordinated activities that may artificially boost transaction volumes and active addresses. For example, the use of bots and orchestrated trading activities during pump-and-dump schemes can create misleading data about the network’s true usage.
Independent blockchain analytics platforms have noted inconsistencies that suggest Solana’s reported figures might not always reflect organic growth. These platforms showed periods where transaction volumes and address activity do not align with typical network behavior, suggesting potential overreporting or manipulation of data to present a more favorable image of the network’s health and activity.
75% of Non-vote Transactions on Solana Network Failed
CoinDesk has reported on concerns regarding the accuracy of Solana’s reported activity numbers and the potential manipulation of these figures. One important issue was the high rate of transaction failures. For instance, it was reported that approximately 75% of non-vote transactions on the Solana network failed at one point, largely due to network congestion and bot spam.
Additionally, CoinDesk revealed as well as explained earlier that the Solana ecosystem has been largely influenced by orchestrated activities designed to inflate transaction volumes artificially. This includes using bots and coordinated trades to create a misleading perception of demand and network activity. All this to make the network appear more active and robust than it genuinely is.
The Solana network has also faced scrutiny due to incidents involving the Saber Labs founders, who used a web of pseudonymous identities to build an ecosystem of interlocking financial products around Saber, a significant DeFi project on Solana. This created an inflated appearance of a large, thriving ecosystem driven by genuine community engagement, which was not entirely the case.
Be Cautious!
While Solana reports robust growth and high activity levels, there are valid concerns about the accuracy of these numbers. The potential for manipulation and the presence of artificial boosting mechanisms mean that stakeholders should critically evaluate the reported metrics.
