Report Claims That 97% of Uniswap Tokens Are ‘Rug Pulls’ – Crypto Twitter Has Doubts

A team of researchers says that 97.7% of tokens launched on decentralized crypto exchange Uniswap turned out to be bogus.

Not surprisingCrypto Twitter has some thoughts.

The researchers were looking to build on the work carried out in a 2021 study which used a machine learning algorithm to analyze transaction data and find Uniswap tokens that turned out to be scams. But that algorithm could only identify suspect tokens after the scams had taken place.

In the new study, researchers claim to have added transaction data from 20,000 more tokens, manually analyzed the data, and developed machine learning methods that can “detect potential blanket moves before they occur” with 99% accuracy.

That means of the nearly 27,000 tokens analyzed, only 631 were found to be “non-malicious.”

A rye move happens when a developer launches a token, makes it seem like a roadmap for further development, sells the token on the empty promises, and then disappears with the funds. Before bridge chain picks became a $2 billion problemcarpet covers were a significant part of the total stolen $2 billion dollars in 2020according to a 2021 CipherTrace report.

Remember that “new” is a relative term in academics. The newspaper was published by Interdisciplinary Digital Publishing Institute in March 2022. But that may not be obvious from the preprint draft who made the rounds on Twitter after Nick Almond, who leads the FactoryDAO protocol, shared it on Monday.

Researcher Bruno Mazarra told Decrypt in an email that he had seen the conversations about the team’s research on Twitter and provided a link to the published copy.

The draft shared has a date of January 2022. It was also uploaded to Cryptography ePrint archive in March. The version published by MDPI is a few pages longer and expanded the data set to include tokens that were on Uniswap V2 through September 3, 2021, but is otherwise the same.

In responses to Almond’s tweet, Mark Zeller, vice president of the DeFi Committee at L’Adan, a French digital asset industry group, pointed out that regulators there took a lot of luck in lowering the minimum amount of capital required to register a limited liability company to €1.

He likened it to how quickly and cheaply it can be for people to create and list new tokens on crypto exchanges, such as Uniswap. People opposed to the French LLC registration change were concerned that it would make it too easy for “idiots and con-artists” to register seemingly legitimate business entities.

“It was true. What was also true is that some of these €1 companies are now unicorns,” Zeller wrote on Twitter. “I support freedom, and accept personal responsibility for risks.”

Other people, such as investor and board member of Israeli Blockchain Industry forum Maya Zehavi, took aim at the research team’s methodology.

“Sorry, but that’s one hell of a flawed methodology for that claim,” she said on Twitterand complained that the researchers had not considered tokens’ liquidity or volume when determining which of the roughly 27,000 tokens had experienced a blanket pull.

“It’s like saying 97% of Twitter accounts are fake, but none were active in the last year,” Zehavi concluded.

The researchers used an Infura archive node and the Etherscan API to collect transaction data for all tokens listed on Uniswap V2 between April 5, 2020 and September 3, 2021. The research paper details the methods used (among them the Herfindahl-Hirschman Index – as federal agencies use to assess markets) and claim that other fraud detectors such as Token Sniffer and Rug Pull Detector give misleading results.

For example, it is common in decentralized finance for tokens to include liquidity lockers, such as UniCrypt, as an assurance that developers will not be able to move funds out of a smart contract once deposited by investors. But that’s hardly a guarantee against being scammed, the researchers write, saying that “90% of tokens that use lock-in contracts tend to become a blanket cover or a malicious token in the end.”

There was some pushback from DeFi Pulse co-founder Scott Lewis, who argued that the researchers — or at least Almond in his 12-word summary of their 21-page draft — had used the term “rug pull” too liberally.

He said many of the tokens on Uniswap were “low-stakes/low-revenue scams, where the token tried to look like an established token,” adding that the same scammer could create thousands with very little effort.

“‘Rug’ is an exit scam and was not 97.7% of tokens on Uniswap,” he wrote on Twitter.