Coinbase’s Base sees a surge in user activity and memecoin security concerns following the Dencun upgrade that lowered Ethereum layer 2 fees.

Following the recent Dencun upgrade, which significantly reduced fees on Ethereum layer 2 solutions, Coinbase’s rollup, Base, has seen an unprecedented spike in user engagement, transactions, and total value locked (TVL). This surge mirrors the activity observed on the fast and affordable Layer 1 blockchain, Solana, primarily driven by speculative trading in memecoins. Many users flock to these platforms with hopes of substantial financial gains from minimal investments.

Memecoin on Base

A recent investigation has raised serious concerns about the security of the multitude of memecoins transacting on Base. During the week of March 19 to 25, experts analyzed 1,000 new Base tokens, mostly consisting of memecoins or outright scams, out of more than 380,000 ERC-20 tokens currently on the platform. Findings reveal that a staggering 90.8% of these tokens do not meet basic security measures such as locked liquidity, verified contracts, and the absence of honeypot setups.

To explain, locked liquidity ensures a portion of a cryptocurrency’s trading pair is secured via a smart contract, thus mitigating the risk of a rug pull. Verified contracts allow investors to review potential risks transparently, while a honeypot scam lures investors with the promise of high returns but prevents them from selling their holdings.

The analysis further highlighted that a considerable portion of the tokens, 16.9%, could be classified as scams, employing deceptive tactics like exorbitant sales taxes or setting up honeypots. Some projects did not lock their liquidity pools, a move that exposes investors to potential rug pulls where developers can drain the funds and abandon the project.

David Schwed from Halborn security noted that many memecoin projects suffer from vulnerabilities due to a lack of security expertise among developers or mere replication of existing flawed tokens. Despite these concerns, some tokens showed better security practices, with 675 out of the 905 projects without locked liquidity having verified contracts.

Market Reactions

Despite the significant security concerns, the influx of new “good” tokens outweighs Base’s DeFi ecosystem. In the week leading up to April 2, around 4,000 new tokens were launched on Base, marking a significant increase from the previous weeks. This growth has had a noticeable impact on decentralized exchanges (DEXs) on the platform. Uniswap, a leading DEX on Base, reported a 147% increase in trading volume, reaching $405.09 million.

In contrast, Solana’s DEXs experienced a decline, with the top five DEXs seeing reductions in trading volume ranging from 20% to 59.5%. This suggests that while Base is gaining popularity through memecoin trades, Solana’s market presence is slightly diminishing.

The memecoin phenomenon has divided industry opinions. Some experts criticize the lack of utility and high fraud rates associated with these tokens. However, others, like Arthur Hayes from BitMEX, argue that the attention and new participants they bring to the cryptocurrency sector contribute positively to its growth.

Vesper, a developer and founder on Base, expressed a shift in perspective, acknowledging that non-tangible elements also play a crucial role in the dynamics of the crypto space. He emphasized the importance of both tangible technologies like blockchains and the intangible energies that drive community and innovation within the ecosystem.

The post Security Concerns on Base Memecoins appeared first on Crypto Academy.

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Filed under: Bitcoin - @ April 22, 2024 2:17 pm