Scam Crypto Tokens Proliferate on Blockchain Hatched by Coinbase

Olga Kharif, Bloomberg News

The Coinbase logo on a smartphone arranged in the Brooklyn borough of New York, US, on Wednesday, June 7, 2023. The list of digital tokens deemed as unregistered securities by the Securities and Exchange Commission now spans over $120 billion of crypto after the US agencys lawsuits against Binance Holdings Ltd. and Coinbase Global Inc. , Bloomberg

(Bloomberg) -- Token scams are flourishing on Base, the new blockchain launched by crypto exchange Coinbase Global Inc., earlier this month, an unfortunate byproduct of how vulnerable these networks are because they allow anyone to use them.

Between mid-July and Base’s public debut in August, developers deployed more than 500 scam tokens — such as BASEPEPE (BPEPE) and Baby Yoda (YODA) — on the blockchain, according to Solidus Labs, a New York-based company that specializes in monitoring suspicious crypto transactions. About 300 of the tokens let their creators mint an unlimited number of coins, a feature Base users weren’t aware of, impacting the tokens’ values. Another 60 coins blocked buyers from reselling them on exchanges, Solidus said.

The scam tokens resulted in about $3.7 million in trading volume on Base-based decentralized exchanges, which let users trade directly with each other. The scammers bagged about $2 million in profit, according to Solidus.

“Scam token creators feed on hype, promise, and price and volume manipulation,” Solidus said in a report.

Token scams are nothing new, and they proliferate on all public blockchains. An earlier report from researcher Chainalysis said that 24% of all new tokens launched in 2022 bore characteristics of pump-and-dump schemes. After all, launching a new token is easy. Developers launching new projects and tokens can remain anonymous, “which makes it possible for serial offenders,” Chainalysis said in the report.

Coinbase rolled out Base earlier this month to foster a community of developers that would build a variety of so-called decentralized apps for Coinbase users, making the exchange more useful — and stickier — for customers. Base, which is one of many so-called Layer 2 networks created on top of Ethereum, makes it easy to build decentralized apps that connect to Coinbase’s products, users and tools.

“We encourage consumers to do their research diligently before participating in any dapp, on Base or any other chain, just as they would on the open internet,” said a Coinbase spokesperson.

With decentralized services, anyone can deploy a token; it may be easier to detect than in traditional finance, however, said Chen Arad, co-founder of Solidus.

“Buzz is always a factor and naturally Base generated buzz which attracts scammers,” Arad said.

In addition to hundreds of scam coins, other “deceptively touted and traded” cryptocurrencies made it onto Base, Solidus said. The creator of memecoin $Bald got more than $5.2 million after hyping the token on Twitter and inflating its price on LeetSwap, a decentralized exchange on Base, the researcher said.

“The hype surrounding the Base network is no exception — so approach tokens that play off of it with caution,” Solidus noted in the report.