Coinbase Protocol: One in Six Meme Tokens Are Fraudulent, and 91% Have Vulnerabilities
With the latest Dencun update resulting in lower fees for L2 solutions, Coinbase's Base protocol has seen a significant increase in popularity, attracting more users transacting and increasing the total value locked (TVL). The main activity is made up of meme coins, but every sixth coin turned out to be a scam, according to a report by Cointelegraph Magazine.
The researchers analyzed the “profiles” of 1,000 tokens launched between March 19 and March 25 on the Base protocol. The total number of ERC-20 assets on the platform is approximately 380,000.
To assess the security of the coins, they were analyzed by car auditors on the DEXTools analytics platform. The tool analyzed blocked liquidity, verified contracts and the absence of suspicious issues.
The researchers analyzed the “profiles” of 1,000 tokens launched between March 19 and March 25 on the Base protocol. The total number of ERC-20 assets on the platform is approximately 380,000.
To assess the security of the coins, they were analyzed by car auditors on the DEXTools analytics platform. The tool analyzed blocked liquidity, verified contracts and the absence of suspicious issues.
Research of tokens on Base. Source: Cointelegraph.
90.8% of tokens had at least one security vulnerability, while 90.5% of them did not have liquidity pools (LPs) locked. Additionally, 23.2% of tokens did not have verified contracts.
It is noteworthy that 12.1% of tokens were classified as “honey assets”, they are available for purchase, but cannot be sold due to restrictions imposed by the smart contract.
The study points to potential violations of the law, but also highlights the lack of knowledge among meme coin creators regarding security processes. This especially applies to situations where tokens are launched as a joke.
It is noteworthy that 12.1% of tokens were classified as “honey assets”, they are available for purchase, but cannot be sold due to restrictions imposed by the smart contract.
The study points to potential violations of the law, but also highlights the lack of knowledge among meme coin creators regarding security processes. This especially applies to situations where tokens are launched as a joke.
“This scenario highlights the challenges for projects that may not have the resources to hire security experts or conduct independent assessments of their smart contracts,” David Shwed, COO of security company Halborn
Obvious fraud
According to the analysis, 16.9% of projects raise suspicions of criminal intent due to inflated sales fees or the use of clearly fraudulent smart contracts.
It also found that possible decoys were present in 121 assets. 48 of them commission fees reached 100%, which is almost the same as outright fraud.
It also found that possible decoys were present in 121 assets. 48 of them commission fees reached 100%, which is almost the same as outright fraud.
“Meme coin scams can take many forms, and automated auditors have a chance of mislabeling tokens or even missing some ingenious schemes,” Cointelegraph noted.
The most common vulnerability among the 1,000 projects analyzed was found in their liquidity on exchange platforms (LPs). The vast majority, 90.5% of projects, have not recorded their liquidity, which makes them prone to failure and potentially vulnerable to a “rug pull” - a situation where the creators of a coin suddenly withdraw all liquidity, deceive investors and go into hiding.
But the absence of liquidity fixation does not clearly indicate illegal intentions and a desire to deceive users. For example, out of 905 projects without blocking, 675 had verified contracts.
But the absence of liquidity fixation does not clearly indicate illegal intentions and a desire to deceive users. For example, out of 905 projects without blocking, 675 had verified contracts.
Real benefit
In the week leading up to March 25, nearly 1,300 new tokens were created on the Base platform, according to data from trading data provider Birdeye. Over the next seven days, that number rose to 4,000.
While the weekly supply of coins on the Solana network was around 19,000 during the same period. Based on this information, researchers noted the transition of meme traders to decentralized exchanges (DEX) Base.
From March 25 to April 2, trading volumes on the Solana DEX dropped significantly, with the five largest platforms in the ecosystem recording declines ranging from 20% to 60%.
While the weekly supply of coins on the Solana network was around 19,000 during the same period. Based on this information, researchers noted the transition of meme traders to decentralized exchanges (DEX) Base.
From March 25 to April 2, trading volumes on the Solana DEX dropped significantly, with the five largest platforms in the ecosystem recording declines ranging from 20% to 60%.
In parallel, four of the five decentralized exchanges on the Base platform showed growth. Trading volume on leading exchange Uniswap increased by 147%, reaching $405.09 million.
Previously, some industry experts have expressed criticism of the meme coin boom, fearing a possible bubble burst. The founder and CEO of CryptoQuant, Ki Yoon Joo, expressed concerns about the negative impact of such projects on the crypto industry. He compared the situation to the ICO mania in 2018, which left many investors with losses.
In contrast, Maartje Bas, head of research at Messari, opined that meme tokens play an important role in attracting new users to the cryptocurrency space. This view of the benefits of meme tokens for the industry is also shared by former BitMEX CEO Arthur Hayes and macro investor Raoul Pal.
Previously, some industry experts have expressed criticism of the meme coin boom, fearing a possible bubble burst. The founder and CEO of CryptoQuant, Ki Yoon Joo, expressed concerns about the negative impact of such projects on the crypto industry. He compared the situation to the ICO mania in 2018, which left many investors with losses.
In contrast, Maartje Bas, head of research at Messari, opined that meme tokens play an important role in attracting new users to the cryptocurrency space. This view of the benefits of meme tokens for the industry is also shared by former BitMEX CEO Arthur Hayes and macro investor Raoul Pal.
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