A big upside of creating financial markets on permissionless networks: there are no rules. That may be the downside, too.

Data released Thursday by on-chain sleuthing firm Chainalysis suggests that 54% of all tokens launched on Ethereum in 2023 were subjected to trading activity suggestive of a pump and dump scheme, in which insiders dupe the market for profit.

To be clear, the prevalence of this activity is limited in scope. These tokens only comprised 1.3% of total trading volume on Ethereum's network of decentralized exchanges in 2023.

It nonetheless highlights the permissionless nature of Ethereum. Anyone can conjure up an ERC-20 token with little effort, create a trading pool on Uniswap or some other DEX, trade it between themselves to create the impression of activity, and then, when a bot takes the bait and buys, pull the liquidity and profit.

In one instance, Chainalysis said it identified a single wallet that appeared to launch 81 tokens and net over $800,000 in profits. At least one of its creations involved repeated wash trades leading to a removal of ETH liquidity from token's DEX trading pool (the so-called "rug pull") that left other traders unable to exit.

Chainalysis is best known for supplying crypto businesses and particularly government agencies with investigative tools that help them police illegal activity, like trading on darknet markets and sanctions violations.

That's all made possible by the transparency of the Ethereum blockchain. Every trade is recorded out in the open, meaning no-goodniks create a trail of digital breadcrumbs.

It's impossible to tell with certainty whether the activity is actually malicious, let alone illegal, without knowing more specifics, said Chainalysis Director of Research Kim Grauer. Still, the data suggests widespread "potential shenanigans" (as one observer called it) that warrants attention and study.

"The name of the game right now is educating people that you can" search on-chain data for plenty of eyebrow-raising activity, she said.