How Uniswap scams work — part 2
In the part 1 post, we covered some basic scams going around on Uniswap. Let’s add a bit more context about this operation and how big it is.
On 5 July we counted more than 50 of so-called rug pulls, a tactic that was explained in detail in part 1 of this series. Previous day numbers were similar and few days before rug pulls went even to a hundred per day. Just a few examples for how it looks like can be seen on these pairs
So this happens on a daily basis and approx 100-200 ether is siphoned out of the unlucky people wallets and then probably sold for FIAT as scammers do not HODL (mostly).
But this is just part of the operation, there are much bigger plays going on that take more effort.
On to the bigger Pump and Dump plays(p/d). Let's take for example https://shibatoken.com project which is just an attempt to be some kind of “DOGE killer” in Defi wave but basically is just plain cash grab from the gullible.
They used tricky tactics, they made the huge(maximum) amount of tokens Ethereum permits 1,000,000,000,000,000, for which in many cases websites/apps don’t even have enough room to show the number, also pure price display is hard to display and comprehend as seen below
This is kind of important as when the token launches nobody knows the exact price, even uniswap.info doesn’t show it, so some people just buy into FOMO not knowing their entry.
They also used some gimmicks, sending part of their huge supply to Vitalik Buterin himself as a way to get some “legitimacy”.
They called this burning of tokens, but they didn’t really burn them as he could have sent them back.
After that, next transaction was adding liquidity to uniswap pool and the party was ready to start.
After making this pool, first buyers come in (all can be checked on etherscan on the contract, here https://etherscan.io/token/0x95ad61b0a150d79219dcf64e1e6cc01f0b64c4ce go to the last page of transactions)
Many of those first buyers are in on the game, they know what is the “play” and invest early, then spread the rumors and give tips to others who will shill the same project, it is shilled on telegram, twitter and discord mostly.
The project in itself is nothing special, the smart contract which is basically what you are investing in is something that can be found all over the Ethereum network, in fact there are more than 800 exact matches (line by line match) of this contract, some dating to a year ago
and the website is also something done in an afternoon, so what is this project then? It is a marketing (Ponzi) project, not a crypto project, catching the next fool who will pay more and doing some viral effects with it.
Founder and creator of contract did watch out and he didn’t dump anything from his original address, he did pull out some liquidity a few days ago as the project is dead and he wants to salvage some last ETH from the project
( Transactions of the project creator https://etherscan.io/token/0x95ad61b0a150d79219dcf64e1e6cc01f0b64c4ce?a=0xb8f226ddb7bc672e27dffb67e4adabfa8c0dfa08)
but they probably did buy it from some other addresses in the beginning and heavily profited while shilling and FOMO were on the peak.
Project is almost dead now, which was expected, only kept barely alive by people who invested in it and don’t want to take a loss, so they provided some liquidity and try to salvage their losses but soon it will be dead ground once the final sucker pulls out.
So this kind of P/D doesn’t need a RUG PULL as described in part 1 of this article as much more can be gained if the project gets “traction” like this and then ether can be extracted selling to new suckers in a period of few days.
There are many projects like this, some having some website, many don’t have anything other than smart contract and added uniswap pair, some are much more sophisticated and will even look like real project but their inventors never had an idea to make it a real useful product, just to get rich from people FOMOing at a scale in a bull run.
(edit: In the meantime SHIBA relaunched, with new attempt of Ponzi, adding some staking and farming as that is what was “working” lately, but that balloon also went quickly to bust)
All of this is nothing new and has been seen before on centralized exchanges especially in 2017 ICO era, but then it took a bit more effort and was harder to create and launch a new project so there were not so many daily operations. What is also interesting in uniswap scams is that everything is onchain, so all transactions and steps can be tracked and analyzed.
Locked liquidity and non-scam problems
In the first part, I mentioned that liquidity locking would be a good solution and there are sites like Unicrypt that lock liquidity added to uniswap with smart contract(not audited at this moment) so technically rug pulls wouldn’t be possible. But there are few problems with this, first of all with UI, they don’t show or count for the score for how long this liquidity is locked, some of them locked it for short period (like a month or so), the bigger problem is they don’t lock all the tokens but just the ones added to the uniswap pool, which is a big problem and makes this locking almost obsolete.
Why? Let’s take an example of token that has minted 20 000 units if they add to the pool 5000 token and 10 ETH, they provided liquidity and they could even lock this liquidity for 10 years, what can happen then is that they could still use the other 15 000 tokens which are left in contract creator wallet to drain the pool they locked and take out all the ether. All that would be left is just a pool with no ETH and 20000 of that token with probably 0 or near 0 price. People could still buy this token but it would be probably anchored to 0 price and it would be good as dead. (Didn’t see projects do this so far but could expect it)
There is also a problem with the proper distribution of tokens when issuing it over uniswap. If projects put most(or all) of their token supply in a go on uniswap, then this produces a few “whales” who get large amounts of token for a small investment, which then becomes risky for this projects as you have people ready to dump large amounts or will constantly unload and drag the price of token down.
So the only way liquidity locking would work is that projects provide full supply to the pools and then also lock it. The problem is there is no mechanism to check this fast and automatic and it first requires manual checking of smart contract and if the supply is fixed, then if all the tokens have been minted and then finally if the liquidity is locked via some services or just sent to burn address and locked forever. This series of events hasn’t happened so far in any project and is not likely that it will be a trend, so until there is some cleaver simpler solution the best you can do is make your due diligence and get some education.
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
Do You want to help fight crypto scammers and help bring more articles like this?
Of course You wont, seems nobody does, that is one of the reason crypto is full of scams, enjoy