According to University of Texas researchers, foul play occurred during the EOS token sale four years ago. Block.one developed the EOI.IO blockchain protocol based on its 2017 white paper. Following that, between 2017 and 2018, an EOS Initial Coin Offering (ICO) was held. The initial coin offering raised a record $4.362 billion, making it the world’s largest token sale.
The project received backing from industry heavyweights such as PayPal co-founder Peter Thiel. Alan Howard and Louis Bacon, both billionaire hedge fund managers, are among the others.
Having said that, new research titled “Were ETH and EOS Recycled During the EOS Initial Coin Offering?” has surfaced. The report, dated Aug. 31, was published by Professor John Griffin of the Austin McCombs School of Business and the financial analysis firm Integra FEC. The research asserts that wash trading contributed to the EOS price increase in 2018.
Notably, a wash-trade is a type of market manipulation in which an investor purchases and sells the same asset simultaneously. This repeated action generates erroneous artificial activity in the marketplace, inflating the asset’s price.
Wash-trading on EOS
The paper claims that the EOS wash trading occurred on the Binance and Bitfinex cryptocurrency exchanges. However, the research does not implicate Block.one in any wrongdoing. Additionally, the firm (Block.one) cited a July report by law firm Clifford Chance LLP that stated there was “no evidence that Block.one purchased tokens on the primary market.”
As Griffin put it in reference to the wash-trade:
To begin, it directly manipulated EOS’s offering price upward through additional buying, inflating the token’s market value. Second, it created an erroneous perception of the token’s value, which enticed others to purchase the ICO token.
Twenty-one suspect Ethereum accounts were created solely for the purpose of recycling EOS. During the ICO, the only cryptocurrency used to purchase EOS was ether. Suspected funds totaled 1.2 million ETH, which was worth approximately $815 million at the time. A “substantial portion” of the Ether raised appears to have been “recycled” by “rerouting the ICO contributions through a series of obfuscating intermediary accounts and finally arriving at Bitfinex.”
Additionally, 2.895 million Ether ($1.721 billion), or 39% of the Ether raised in the crowd sale, is traced back to Bitfinex from the ICO crowd sale wallet.
Additionally, Griffin noted that these suspicious accounts accounted for nearly a quarter of EOS transactions at the time. Following a month-long investigation with Bloomberg, Robert C. Hockett, a law professor at Cornell Law School, confirmed the storey.
In October 2019, the same Griffin published the report “Is Bitcoin Truly Untethered?” He claimed in it that Tether (USDT), the leading stablecoin, was wash-traded to prop up Bitcoin prices during the 2017 bull run. Later, iFinex, the company that created Tether, dismissed the claims as “rash and false.”
Whether due to manipulation or not, EOS is now trading at just $5, down 77% from its April 2018 all-time high of $22.70. EOS has also fallen to 35th place in terms of market capitalization, down from the top five in 2018.