The Value of Merging On-Chain and Off-Chain Data in Token Analysis
Combining on-chain and off-chain data is crucial for comprehensive token analysis, providing a fuller picture of market trends and project fundamentals.
Last updated
Combining on-chain and off-chain data is crucial for comprehensive token analysis, providing a fuller picture of market trends and project fundamentals.
Last updated
On 2024/09/19, we wanted to check a token with many holders. A common belief is that token holders equal more reputable and legitimate projects. So, we set filters to get newer tokens with many holders. We stumbled on $META:
100% Lp token burned
Security checks passing
It was created one month ago
It has 120,918 Unique Holders, and the graph has some spikes in holders.
Even the number of unique buyers is extremely high.
Despite having so many unique holders and buyers, it has only ~300 X followers.
And only ~180 Telegram members:
If you're active in crypto, this should immediately raise red flags.
When a token boasts thousands of unique holders, it suggests that the project has attracted many investors. This appeals to new buyers who might think, “If 120,000 people hold this token, it must be good, right?”
But it's crucial to dig deeper into what these numbers truly represent. In some cases, projects can inflate their holder count through various methods, giving the illusion of mass adoption when, in fact, it is all fake.
Here's the catch: Something is off if a project has hundreds of thousands of holders but only a few hundred Twitter followers. Social media engagement is a key indicator of community involvement and real-world interest. While there are possible discrepancies between the number of holders and social media followers, a gap of 120,000 holders vs. 300 followers is a red flag sign. Let's look at a few ways this discrepancy might occur:
One common tactic in the crypto world is the creation of fake wallets. This allows a project to artificially inflate its holder count by spreading a token across thousands of wallets, each holding a small amount. The project can then claim to have a high number of unique holders. In reality, these wallets could all belong to a single entity or a small group of people, doing nothing to create genuine value for the token.
Projects can also use trading bots to artificially inflate their holder count and trading volume, creating the illusion of high demand and activity. These bots manipulate market metrics like holders, transaction volume, price stability, and liquidity, misleading investors into thinking the project is more successful than it is. When the bots stop, the market may lack real buyers, leading to price crashes.
This kind of manipulation is designed to mislead potential buyers by making the project seem more popular than it is. If people see thousands of unique holders, they might assume it's a legitimate and successful project, prompting them to invest without proper research.
Airdrops are another way to boost the number of unique holders artificially. In this scenario, a project distributes free tokens to thousands of wallets (often bots) to give the impression of wide distribution. While airdrops can be a legitimate way to promote a project, they often result in wallets holding tokens without the real intention of engaging with or supporting the project. The holder count becomes inflated, but the actual level of interest and engagement is nonexistent.
Both external MEV bots and external trading bots contribute to an illusion of having holders, masking the true demand for a token. Investors should know these tactics and analyze whether market activity is genuine or driven by automated bots. Be cautious of projects with high volumes but limited real-world engagement or participation from the broader community.
Usually, these types of holder inflation are not meant to be malicious by the token creator but a by-product of these external trading activities.
The best defense against falling for these tricks is to do your own research. Here are a few steps you can take to protect yourself from projects with fake metrics:
Check Social Media Engagement: If a project has thousands of holders but little to no social media presence, that's a red flag. Genuine projects will have active, engaged Twitter, Discord, and Telegram communities.
Look at On-Chain Activity: Use blockchain explorers to see how tokens are distributed. It could be a sign of manipulation if you notice many wallets holding only a few tokens with little or no activity.
Examine the Community: Visit the project's social media channels, read their posts, and see how people interact with them. Are there discussions? Are users asking thoughtful questions? A healthy project will have an engaged and supportive community.
Question Tokenomics: Does the token have a clear use case and demand? Projects that exist solely to pump their token price or artificially inflate metrics often lack strong fundamentals.
Check Development Progress: A project that consistently improves and releases updates is a good sign. If the team does not regularly update, that's another potential red flag.
