New research has shed more light on the crypto industry’s largest-ever token sale, alleging that foul play may have been afoot during EOS’ initial coin offering (ICO) four years ago.
Researchers from the University of Texas have raised fresh concerns regarding Block.one’s record $4.362-billion ICO for the EOS blockchain in 2017 and 2018. The highly-anticipated project was backed by industry heavyweights, including PayPal co-founder Peter Thiel, alongside billionaire hedge fund managers Alan Howard and Louis Bacon. The research does not accuse Block.one itself of any wrongdoing, and the company has cited a report stating there was no evidence it was involved.
On Tuesday, professor John Griffin of the Austin McCombs School of Business and financial analysis firm Integra FEC published their findings in a paper titled “Were ETH and EOS Repeatedly Recycled during the EOS Initial Coin Offering?” — alleging that wash-trading played a key role in EOS’ price discovery.
According to the paper and outlined in an investigation by Bloomberg, EOS was allegedly wash-traded on the Binance and Bitfinex cryptocurrency exchanges in an effort to artificially inflate the prices. Wash-trading describes the process where an entity simultaneously acts as the buyer and seller for the same asset to artificially bolster volume or manipulate prices.
Griffin wrote that artificial demand from suspect accounts created the illusion of demand for the token and pushed prices up:
“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 value of the token which enticed others to want to purchase the ICO token.”
The research allegedly identified 21 accounts that recycled EOS tokens during the ICO. Funds identified as suspect amounted to 1.2 million Ether (ETH) worth around $815 million at the time. Ether was the sole cryptocurrency used to buy EOS during the year-long ICO.
The analysis claims that Ethereum accounts were created in order to repeatedly purchase EOS over time. It claims that a “significant portion” of the Ether raised during the token sale 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 USD), or 39% of the Ether raised in the crowdsale, are also traced from the ICO crowdsale wallet back to Bitfinex.”
Griffin did not identify the owners of the accounts or point the finger at Block.one regarding the alleged wash-trading but noted, “These suspicious accounts accounted for almost a quarter of EOS purchases by the end of the crowdsale.”
Robert C. Hockett, professor of law at Cornell Law School, said that he worked for more than one month on the story alongside media outlet Bloomberg, which published its findings on Thursday.
According to Bloomberg, Block.one responded to the paper by referencing a July document authored by law firm Clifford Chance LLP that asserted there was “no evidence that Block.one purchased tokens on the primary market.”
Related: Startup Darling EOS Cashes In Millions Of ETH As ICO Scorn Continues
The same John Griffin published a paper in October 2019 titled “Is Bitcoin Really Un-Tethered?” that claimed the leading stablecoin Tether (USDT) was wash-traded to influence Bitcoin (BTC) prices during the 2017 bull market. Speaking to Cointelegraph in February 2020, the firm behind Tether, iFinex, labeled the claims “reckless and false.”
Manipulation or otherwise, EOS has largely fallen out of favor with crypto traders and investors. Since ranking among the top five crypto assets by market capitalization in mid-2018, EOS has since tumbled to rank 35th.
The token is currently trading for $5, down 77% from its April 2018 all-time high of $22.70.