Trade or Trick? Detecting and Characterizing Scam Tokens on Uniswap Decentralized Exchange

Abstract

The prosperity of the cryptocurrency ecosystem drives the needs for digital asset trading platforms. Beyond centralized exchanges (CEXs), decentralized exchanges (DEXs) are introduced to allow users to trade cryptocurrency without transferring the custody of their digital assets to the middlemen, thus eliminating the security and privacy issues of CEX. Uniswap, as the most prominent cryptocurrency DEX, is continuing to attract scammers, with fraudulent cryptocurrencies flooding in the ecosystem. In this paper, we take the first step to detect and characterize scam tokens on Uniswap. We first collect all the transactions related to Uniswap exchanges and investigate the landscape of cryptocurrency trading on Uniswap from different perspectives. Then, we propose an accurate approach for flagging scam tokens on Uniswap based on a guilt-by-association heuristic and a machine-learning powered technique. We have identified over 10K scam tokens listed on Uniswap, which suggests that roughly 50% of the tokens listed on Uniswap are scam tokens. All the scam tokens and liquidity pools are created specialized for the "rug pull" scams, and some scam tokens have embedded tricks and backdoors in the smart contracts. We further observe that thousands of collusion addresses help carry out the scams in league with the scam token/pool creators. The scammers have gained a profit of at least $16 million from 40,165 potential victims. Our observations in this paper suggest the urgency to identify and stop scams in the decentralized finance ecosystem.

Of degens and defrauders: Using open-source investigative tools to investigate decentralized finance frauds and money laundering

“…Empirical research has chronicled various types of fraud across DeFi, including market manipulation (Hamrick et al, 2021;Mazorra et al, 2022;Qin et al, 2021;Victor and Weintraud, 2021;Wang et al, 2021a), fraudulent investment schemes (Xia et al, 2021;Mazorra et al, 2022), and exit scams (called "rug pulls") (Xia et al, 2021;Mazorra et al, 2022). Xia et al (2021) describe a typical rug pull scam. A scammer creates a token and provides liquidity on Uniswap to trade this token with a popular cryptocurrency.…”

“…This research uses various machine learning algorithms to detect smart contract Ponzi schemes on Ethereum including using long short-term memory neural networks (Wang et al, 2021b; Hu et al, 2021) and an "anti-leakage" ordered boosting model (Fan et al, 2021). Two other studies (Xia et al, 2021;Mazorra et al, 2022) also use machine learning models to detect scam tokens on the Uniswap decentralized exchange.…”

“…As discussed above, rug pulls are a type of exit scam. The perpetrator creates a token and then adds liquidity on a decentralized exchange to enable users to trade this new token with another, existing cryptocurrency (most commonly a reputable cryptocurrency like Ethereum) (Xia et al, 2021). Uniswap is one of the most popular decentralized exchanges and anyone can add token trading pairs to it (and, unfortunately, many that are added end up being rug pulls) (CoinGecko, 2023).…”

“…Existing literature (Wang et al, 2021b;Hu et al, 2021;Fan et al, 2021;Xia et al, 2021;Mazorra et al, 2022) focuses on detecting various categories of DeFi-based securities violations, such as Ponzi schemes and rug pulls (a type of exit scam). However, all of these studies except that by Xia et al (2021) primarily present results at an aggregate level (and even Xia et al (2021) only explore such violations on a single platform).…”

“…Existing literature (Wang et al, 2021b;Hu et al, 2021;Fan et al, 2021;Xia et al, 2021;Mazorra et al, 2022) focuses on detecting various categories of DeFi-based securities violations, such as Ponzi schemes and rug pulls (a type of exit scam). However, all of these studies except that by Xia et al (2021) primarily present results at an aggregate level (and even Xia et al (2021) only explore such violations on a single platform). While this is useful to characterize the landscape of DeFi fraud, and the extent to which these scams are detectable, there is a disconnect between the scale of the frauds these papers detail and prosecutions which address them.…”