As we all know by now, Uniswap is a decentralized exchange that had quite a meteoric rise. July 31, 2020, saw Uniswap doing a $126m volume in only 24 hours. This is 1/2 of Kraken, and only 1/3 of Coinbase.
Uniswap gives permisionless possibility to people launching their own crypto projects with the ETH token. It allows projects to get listed on their exchange (without any permission), provide liquidity for swaps, thus, helping them get into the world of crypto for free.
This also gives retailers an excellent opportunity to buy projects early on and get an excellent return on investments, but then enters scammers!
Most scammers are well aware of the fact that people are trying their luck, buying new tokens before it increases tenfold in value. So they come up with new ones on Uniswap in flocks.
They just create a new smart contract with some names, provide liquidity for it, and catch a few unlucky people who will try their luck and lose some of their valuable ETH in the process.
For example, Let’s take a look at some projects like:
For the sake of our discussion, we are considering the Kylin.Network( KYL) project.
Click on https://info.uniswap.org/token/0x14a0697732ac443d48217a798071c8e2fbb0691b and scroll down. If you go under Transactions section, click on Adds, this is where liquidity was added.
Then if we go under Swaps, you can see few unlucky people trying to get early and giving their ether to this new project.
After they catch few Ether worth of value they pull out their liquidity. This can be seen in the Removes section.
This scam move is known as “rug pull.” They remove liquidity so quickly because if people who have invested in their project started having doubts, they can sell their tokens back for ETH and remove the profit of these scammers. It is, therefore, easier to remove liquidity and move on to the next project.
And when that is done, you will be left with this screen showing 0 liquidity with you being unable to sell those tokens.
To know more about these scams, refer to our presentation below:
What can you do about it?
In the world of crypto, we really cannot expect the authorities to catch these scammers. Although it is commonly seen that most of the ETH provided for these projects come from exchanges like Binance, hence, some of them could be caught on KYC.
One thing that could be done is education, awareness, and proper information. Another thing that we expect Uniswap to do (maybe in the not-so-distant future) is that Uniswap adding the option of locked liquidity in smart contracts. Meaning, projects would be bound by a timeframe in which they cannot pull their liquidity out.
In this way, Uniswap would be able to lose a lot of their scam volume and would also make it a lot smarter and nicer environment.
Finally always remember,
Do your own research before getting into Uniswap trading. Read about the project, preferably their whitepaper before putting your money in. Also, check their social media profiles to ensure they have a good community with regular posts and updates.
We may come up with a second part to this post soon because the number of scams vary tremendously. Meanwhile, be safe and be crypto smart! Happy trading!