- EOS token price surge during its 2017-2018 $4B ICO was fueled by wash-trading, a recently published paper shows.
- Market manipulation took place from 21 accounts with 39 percent of the Ether raised being recycled.
Foul play took place during the EOS token sale four years ago, University of Texas’s researchers has alleged. Based on its 2017 white paper, the EOI.IO blockchain protocol was developed by Block.one. Thereafter, between 2017 and 2018, an Initial Coin Offering (ICO) of the EOS token was conducted. The ICO made a record $4.362 billion, making it the biggest token sale.
Industry heavyweights such as PayPal co-founder Peter Thiel backed the project. Others include billionaire hedge fund managers Alan Howard and Louis Bacon.
That said, fresh findings have surfaced entitled “Were ETH and EOS Repeatedly Recycled during the EOS Initial Coin Offering?” Professor John Griffin of the Austin McCombs School of Business and Integra FEC financial analysis firm published the report dated Aug. 31. The research alleges that wash-trading led to the EOS 2018 price hike.
Notably, a wash-trade is a form of market manipulation in which an investor(s) simultaneously buys and sells the same asset. This repeated action creates misleading artificial activity in the marketplace thereby inflating the price of the asset.
According to the paper, the EOS wash-trading took place on the Binance and Bitfinex crypto exchanges. The research, however, does not point a finger at Block.one for any wrongdoing. The firm (Block.one) also cited a July document authored by law firm Clifford Chance LLP stating there was “no evidence that Block.one purchased tokens on the primary market.”
As Griffin wrote of the wash-trade:
First, it directly manipulated EOS’s offering price upward through the extra buying and inflated the market value of the token. Second, it created the false impression of the value of the token which enticed others to want to purchase the ICO token.
Suspect Ethereum accounts, a total of 21, were created for the sole purpose of EOS recycling. Ether was the only cryptocurrency used to purchase EOS during the ICO. Suspect funds amounted to 1.2 million ETH, worth roughly $815 million at the time. A “significant portion” of raised Ether appears to have been “recycled by transferring the ICO contributions through a series of obfuscating intermediary accounts and finally arriving at Bitfinex.”
2.895 million Ether ($1.721 billion), or 39 percent of the Ether raised in the crowd sale, are also traced from the ICO crowd sale wallet back to Bitfinex.
On top of that, Griffin noted that these suspicious accounts accounted for almost a quarter of EOS purchases then. Robert C. Hockett, a professor of law at Cornell Law School, confirmed the story following a month-long investigation alongside Bloomberg.
The same Griffin published the report “Is Bitcoin Really Un-Tethered?” in Oct. 2019. In it, he claimed the leading stablecoin, Tether (USDT), was wash-traded to bolster Bitcoin prices during the 2017 bull run. Later on, iFinex, the firm behind Tether disregarded the claims as “reckless and false.”
Manipulation or not, EOS now trades at just $5, down 77 percent from its April 2018 record high of $22.70. EOS has also plummeted to rank 35th from its 2018 top-five position by market cap.