Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today I will be looking at a topic regarding a well known Decentralized Exchange, Uniswap, and how it has been the home of a multitude of rug pull coins. A research paper done by Bruno Mazorra, Victor Adan, and Vanesa Daza, in January 2022, looks at the level of rug pulls the DEX has seen from the amount of coins launched on its exchange, and makes for some interesting and eye opening reading.
What is Uniswap
For those who are not aware, Uniswap is a decentralized exchange (DEX) that was launched in November 2018. It is one of the most popular DEX's and more than 40, 000 ERC-20 tokens were locked and tradable in the Uniswap protocol which totalled a value of 7 billion USD at the time of the paper being completed. The DEX provides swapping, liquidity pools, and locking pool options among others, many of which have attractive API's to draw in user who will lock up their liquidity in the pools. By being a decentralized exchange there is no overall governance, compared to Binance for example which is a a centralized exchange, and therefore is it considered more in line with the a decentralized ideals of crypto in general. However, the caveat is that no governance means no regulation and no regulation means no come back when things go wrong.
The Research
The research group decided to do a study on the exchange. They collected all Uniswap data, including the source code, the
liquidity, the prices, the mint/burn, and transfer events from the 04/05/2020 until 03/09/2021. This was done by directly interacting with the Ethereum blockchain. Every token was analysed and assessed before bring set into different groups of scam, malicious and non-malicious, and this was done using various relevant features of the smart contract and the liquidity pool state. The tokens were also placed into three different types of rug pulls: simple, sell, and trap-door rug pulls, and this was done through a set of tools used to identify them.
They found of 27,588 tokens to have launched on the exchange, a total of 26,957 were labelled as rugs or scams. This left a minor mount of 631 tokens as legitimate for users. Eye opening figures, meaning a total of 97.7% of all the token launched on Uniswap have in fact been scams of rug pulls. Another interesting point to note from the research was the fact 90% of tokens using locking contracts tend to become a rug pull or a malicious token eventually.
The paper is broken down into multiple sections, including ones focusing on the way smart contracts and Ethereum works, how the DEX's work, and even into their different classification of Malicious Uniswap Manoeuvres, with a diagram of such shown below.
To ensure the data was as fair and uncorrupted as possible, they even took into account how some tokens lose their value and liquidity without it being a malicious event, but more due to a simple fluctuation. Therefore they also looked at the recovery of the token, and if a token loses all its liquidity or its price drops to zero and these levels are never recovered, then the probability that the falls are due to malicious intent is increased.
Conclusion
All in all it is a very interesting research paper. Some of it is somewhat technical and could be considered jargon to the lay man (including myself) but if you are interested in learning more about it, or how Uniswap works, I would highly recommend to give the research paper a read. They provided a theoretical classification to understand the different ways of executing a scam, and a process of identifying rug pulls. This led to a result of 97.7% of the tokens labelled being rug pulls, which were then classed into two groups, distinguishing non-malicious tokens from malicious ones.
Have a great day.
Peace. CryptoGod-1.
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