Since the Dencun upgrade, which reduced fees in L2 solutions, Coinbase’s Base protocol has seen a sharp increase in users, transactions, and TVL. Memecoins dominate the activity, with one in six coins being a scam, according to Cointelegraph Magazine.
Researchers profiled 1,000 tokens launched between March 19 and 25. In total, there are about 380,000 ERC-20 assets on Base.
These coins were analyzed using DEXTools’ auto-auditors to determine their safety. The tool examined factors like locked liquidity, verified contracts, and the absence of honeypots.
A recent surge in users, transactions, and TVL on Coinbase’s Base protocol followed the Dencun upgrade, which lowered fees for L2 solutions. Memecoins dominate the activity, with one in six coins identified as scams, according to Cointelegraph Magazine.
Researchers examined 1,000 tokens launched between March 19 and 25, among the roughly 380,000 ERC-20 assets on Base. DEXTools’ auto-auditors assessed these tokens for security, evaluating locked liquidity, verified contracts, and the absence of honeypots.
Findings revealed security flaws in 90.8% of the tokens, with 90.5% lacking locked liquidity pools (LP). Additionally, 23.2% of the tokens did not have verified contracts. About 12.1% were “honeypot” assets that could be bought but not sold due to smart contract restrictions.
While these findings suggest potential illicit activity, they also highlight a lack of security knowledge among memecoin creators, particularly those launching tokens as jokes. “This scenario underscores the challenges faced by projects that might lack the resources to hire security experts or conduct independent audits of their smart contracts,” stated David Schwed, COO of the security firm Halborn.
Blatant Fraud
The analysis indicated that 16.9% of the projects were suspected of criminal intent due to exorbitant sales fees or inherently fraudulent smart contracts. Honeypots were found in 121 assets, and 48 tokens had fees reaching 100%, which is akin to outright theft.
“Memecoin fraud can take many forms, and automated auditors might mislabel tokens or miss some inventive schemes,” Cointelegraph noted.
Common Vulnerabilities
Among the 1,000 analyzed projects, the most common vulnerability was in their LPs. A significant 90.5% of the projects did not lock their liquidity, making them prone to failures and potential rug pulls. “A direct countermeasure to mitigate the risk of developers disappearing is for teams to lock their liquidity pools. This action ensures they cannot access the assets, sometimes with an expiration on these promises,” the report stated. However, not locking liquidity does not always indicate fraudulent intent; 675 of the 905 projects without locked liquidity had verified contracts.
Real Benefits
According to trading data provider Birdeye, approximately 1,300 new tokens appeared on Base in the week leading up to March 25, increasing to 4,000 in the following week. During this time, the weekly token count on Solana’s network was around 19,000. Researchers observed memecoin traders shifting to Base’s decentralized exchanges (DEX).
Between March 25 and April 2, trading volumes on Solana DEXs dropped significantly, with the top five platforms in the ecosystem experiencing a decline of 20-60%.
Simultaneously, four out of five decentralized exchanges on Base showed growth. Trading volume on the leading platform, Uniswap, surged by 147%, reaching $405.09 million.
Previously, some industry experts criticized the memecoin boom, fearing a bubble burst. CryptoQuant’s founder and CEO, Ki Young Ju, stated that such projects harm the cryptocurrency industry. He likened the situation to the ICO mania of 2018, where most investors lost their money.
In contrast, Martje Bas, Head of Research at Messari, argued that memecoins play a crucial role by attracting new users to cryptocurrencies. Former BitMEX CEO Arthur Hayes and macro investor Raoul Pal also acknowledged the value of these assets for the industry.
For instance, on April 3, the URF memecoin team vanished with 2,400 SOL (approximately $450,000) collected during the coin’s presale.
Scammers Profited About $2 Million
According to a Solidus report, around 300 smart contracts for fraudulent tokens contained hidden features allowing their creators to mint unlimited new coins. Another 70 had concealed transaction fee modifiers, and over 60 completely blocked traders from selling tokens.
Scammers used one of three methods to profit:
- Draining all liquidity from trading pairs
- Minting and selling large amounts of new tokens to imbalance trading pairs with ETH
- Rug pulls
Solidus data indicates that creators of scam tokens managed to earn approximately $2 million.
BALD Sparked Scammer Interest in Base
In addition to the hundreds of fraudulent tokens, Solidus researchers noted “deceptively marketed and traded” cryptocurrencies on Base between mid-July and its public debut in August.
Initially, Base was only open to developers and had limited popularity. However, the launch of the BALD memecoin brought a sudden influx of capital and users. Within days, BALD dominated cryptocurrency rankings, surpassing even the pre-halving hype of Litecoin. At its peak, the token’s price approached $0.085, with a market cap of $85 million.
The euphoria was short-lived: the token’s price plummeted by 90% after the developer withdrew millions in liquidity.
Users on Base Targeted by Scammers Alarming Statistics
Phishing attacks on Base surged by 1,900% in March compared to January. In the first month of 2024, network users lost $169,000, while in March, this figure skyrocketed to $3.5 million. In February, the total losses were estimated at $773,900.
The most common scam tactic involves fake accounts on X (formerly Twitter). Scammers hack influencer profiles and post phishing links, often accompanied by announcements of free token giveaways, which unsuspecting users fall for.
In total, scammers stole $71 million in March, affecting over 77,000 users. Ethereum (ETH) remains the most targeted network, followed by BNB (BNB).
Interestingly, the first quarter of 2024 saw a decrease in the number of hacks. Crypto projects lost $336.3 million in the first three months, 23% less than the same period last year.
Base’s Growth
This negative trend is likely due to the overall growth of Base. Recently, more investors and developers have been flocking to the L2 blockchain, fueled by the memecoin craze.
According to CoinGecko, at the time of writing, the market capitalization of memecoins on Base exceeds $1.4 billion, up over 43% in the last month. Leading in market value are Brett (BRETT), Degen (DEGEN), and Toshi (TOSHI), which have surged by 1,559%, 2,352%, and 113% respectively in the past 30 days.
Meanwhile, TVL on Base stands at $3.5 billion, according to L2Beat. In the last 24 hours, the value of locked funds in the L2 network increased by 35%.
Just last week, Base broke the significant $2 billion mark. It reached this level in less than 20 days, and added another billion in TVL in less than seven days.
Protecting Yourself from Scammers on the Base Network
1.Stay Informed and Vigilant
- Educate Yourself: Understand the common types of scams and how they operate. Familiarize yourself with the terms and conditions of the Base network and the protocols you interact with.
- Follow Trusted Sources: Get your information from reputable sources, such as official Base channels, well-known cryptocurrency news websites, and verified social media accounts.
2. Use Reliable Wallets and Tools
- Secure Wallets: Use well-known and reputable cryptocurrency wallets that have strong security measures and offer features like two-factor authentication (2FA).
- Phishing Protection Tools: Utilize browser extensions and security tools that can help identify phishing sites and malicious links.
3. Verify Before Trusting
- Check Smart Contracts: Before interacting with a token or protocol, verify its smart contract on platforms like Etherscan. Look for signs of credibility such as verified contract status and reviews.
- Audit Reports: Prefer tokens and projects that have undergone third-party audits. Audits by reputable firms can highlight potential security issues and vulnerabilities.
4. Exercise Caution with Links and Emails
- Beware of Phishing: Avoid clicking on links from unknown or unsolicited messages, emails, or social media posts. Scammers often use these to direct you to fake websites that look identical to legitimate ones.
- Official Websites Only: Always access services by typing the official URL directly into your browser rather than clicking on links. Bookmark important sites to ensure you visit the correct ones.
5. Monitor Activity Regularly
- Transaction Alerts: Enable notifications for transactions on your wallet to immediately spot any unauthorized activity.
- Review Account Activity: Regularly review the activity on your accounts and wallets for any suspicious transactions or actions.
6. Secure Your Private Keys and Seed Phrases
- Private Key Safety: Never share your private keys or seed phrases with anyone. Store them offline in a secure location.
- Backup Your Keys: Keep multiple backups of your private keys and seed phrases in different secure locations.
7. Participate in Verified Airdrops and Token Sales
- Due Diligence: Before participating in airdrops or token sales, research the project’s team, whitepaper, and community feedback. Verify the legitimacy through official channels.
- Avoid Suspicious Offers: Be skeptical of offers that seem too good to be true, such as guaranteed high returns or free tokens with minimal effort.
8. Utilize Multi-Signature Wallets
- Additional Security Layer: Multi-signature wallets require multiple approvals for a transaction, reducing the risk of unauthorized transfers.
9. Stay Updated on Security Practices
- Community Engagement: Join forums, discussion groups, and communities related to Base and cryptocurrency security. Sharing and receiving up-to-date information can help you stay ahead of potential threats.
10. Report Suspicious Activity
- Alert the Community: If you encounter or suspect any scam or fraudulent activity, report it to the Base community and relevant platforms. This can help warn others and mitigate further damage.
By following these steps, you can significantly reduce your risk of falling victim to scams on the Base network and other blockchain platforms. Stay vigilant, informed, and proactive in safeguarding your assets and information.
Conclusion
The Base network has seen tremendous growth and activity, especially following the Dencun upgrade, which reduced fees for L2 solutions. While this surge has attracted a significant number of users and transactions, it has also become a hotspot for scams, particularly in the memecoin sector. An alarming portion of these tokens are fraudulent, with one in six identified as scams. These scams often involve tactics such as honeypots, unverified contracts, and locked liquidity pools, which can lead to significant financial losses for unsuspecting investors.
However, this wave of activity and attention isn’t entirely negative. Memecoins, despite their risks, are drawing new users to the cryptocurrency space, contributing to the overall growth and adoption of blockchain technology. Notable industry figures like Martje Bas, Arthur Hayes, and Raoul Pal acknowledge the role of these tokens in expanding the crypto ecosystem.
To safeguard against these scams, users should adopt rigorous security practices: staying informed, using reliable tools, verifying contracts, exercising caution with links, and securing their private keys. Additionally, participating in verified airdrops, utilizing multi-signature wallets, and staying engaged with the community can further protect users from potential fraud.
As Base continues to grow, both its potential and its risks become more pronounced. By staying vigilant and proactive, users can navigate this dynamic environment more safely, leveraging the opportunities while mitigating the threats.
FAQ
What are memecoins, and why are they popular on the Base network? Memecoins are cryptocurrencies often created as jokes or based on popular internet memes. They are popular on the Base network due to their viral nature and potential for high short-term gains, attracting significant speculative trading activity.
How prevalent are scams on the Base network? According to Cointelegraph Magazine, one in six coins on the Base network is identified as a scam. Researchers found that 90.8% of analyzed tokens had at least one security flaw, and 90.5% lacked locked liquidity pools, making them vulnerable to scams like rug pulls and honeypots.
What is a honeypot in the context of cryptocurrency scams? A honeypot is a type of scam where the smart contract allows users to buy tokens but prevents them from selling. This traps investors’ funds and allows the scammer to drain liquidity and make a profit.
What are some common vulnerabilities in tokens on the Base network? The most common vulnerabilities include lack of locked liquidity, unverified smart contracts, and the presence of honeypot mechanisms. These flaws can lead to significant risks for investors.
How can I protect myself from scams on the Base network? Protecting yourself involves several steps:
- Stay informed and follow trusted sources.
- Use secure wallets and phishing protection tools.
- Verify smart contracts and look for audit reports.
- Exercise caution with links and emails.
- Regularly monitor your account activity.
- Secure your private keys and seed phrases.
- Participate only in verified airdrops and token sales.
- Utilize multi-signature wallets.
- Stay updated on security practices and report suspicious activity.
What is the role of audits in ensuring the safety of tokens? Audits conducted by reputable firms assess the security of smart contracts and highlight potential vulnerabilities. Tokens that have undergone third-party audits are generally considered more trustworthy, as the audits provide an additional layer of scrutiny.
How significant is the issue of phishing on the Base network? Phishing attacks on the Base network have surged dramatically. In March 2024, there was a 1,900% increase in phishing attacks compared to January, with users losing $3.5 million in March alone. The most common tactic involves scammers using fake accounts and phishing links on social media platforms like X (formerly Twitter).
How has the memecoin boom affected the overall cryptocurrency industry? The memecoin boom has brought both positive and negative impacts. While it attracts new users to cryptocurrencies and contributes to market growth, it also raises concerns about the potential for bubbles and scams. Industry experts have varying opinions on its long-term effects, with some viewing it as harmful and others recognizing its role in expanding the crypto user base.
What are the key metrics indicating the growth of the Base network? Key metrics include the sharp increase in users, transactions, and TVL. For example, the TVL on Base reached $3.5 billion, and the market capitalization of memecoins on Base exceeded $1.4 billion, reflecting significant growth in a short period.
