Highlights
- Tokens on the BNB blockchain are most commonly affected by safety issues.
- Disproportionately often, proxy contracts are found in projects with a market cap of less than $1 million.
- Tokens with a market cap of over $500 million frequently have hidden owners.
- 4.2% of all tokens have buy/sell taxes of more than 10%, making them potential honey pots.
About The Data
The L2 token data I collected is from coinbrain.com. Data includes token name and symbol, market cap, number of holders, as well as information on 7 safety indicators (all data taken on 27 Mar. 2023). I included the top 500 tokens by market cap in my analysis.
The market cap data only accounts for the token data from decentralized exchanges (DEXs) and varies according to the chain it is traded on. Some tokens are traded both on CEXs and DEXs. In these cases, the market cap is underestimated. However, I do not think this affects my analysis much.
If one token is presented on different chains, then the token is counted multiple times, because the smart contracts launched on different chains are different.
The 7 Safety Metrics Featured on CoinBrain
CoinBrain sourced the safety indicators from GoPlus Security. It incorporates 7 metrics:
- Honeypot: a honeypot contract is designed with harmful code that permits solely the contract’s owner to make withdrawals from the coin liquidity pool.
- Buy/Sell Tax: denotes the portion of funds that gets automatically distributed during a transaction. In the case of deflationary tokens, this tax generally ranges around 10%. If the tax exceeds 50%, or if it can be altered, it may raise suspicions. It is advisable to seek more information from the project team. CoinBrain classifies projects with high buy/sell taxes as potential honey pots.
- Pausable Transfers: the ability to pause transfers enables the token owner to halt trades at any time. This functionality is commonly employed during token ICOs or as a contingency measure in the event of a significant bug. To learn more, it is recommended to reach out to the project team.
- Proxy Contract: acts as a mediator between a smart contract and its implementation contract. All requests are routed through the proxy to the implementation contract. By changing the implementation contract, the contract features can be modified.
- Creator Owns>5% Liquidity: if a significant quantity of tokens is sold by the owner wallet that holds them, it could have a substantial influence on the token price.
- Blacklist Included: the contract owner is able to blacklist any address. The addresses on the blacklist are not able to continue trading this token.
- Hidden Owner: although the token owner’s identity is concealed, they can still exert control over the contract. Hidden ownership is frequently associated with malicious features.
Overview
Out of the top 500 L2 tokens…
- 1 token (0.2%) has a honeypot smart contract.
- 84 tokens (17%) have a buy/sell tax within the 10% range. 21 tokens (4%) have buy/sell tax of more than 10%, making them potential honey pots.
- 63 tokens (12.5%) allow pausable transfers.
- 68 tokens (13.5%) feature proxy contracts.
- 19 tokens’ owners (4%) hold more than 5% of the token’s liquidity.
- 46 tokens (9%) to include blacklists.
- 44 tokens (9%) have hidden owners and for 83 tokens (16.5%) no information was provided.
Let’s visualize these findings to get a better understanding.
We see that between 4% and 21% of the top 500 L2 tokens are shown to have safety issues. In the next step, let’s check if we can find any patterns when it comes to their occurrence.
Safety Issues vs Market Cap
First, I wanted to analyze whether there is a connection between the size of market caps and the number of occurring safety issues. In order to answer this question, I divided the tokens into 5 categories with different market caps:
- Cat. 1: market cap less than $1 million (12 tokens).
- Cat. 2: $1 million =< $50 million (384 tokens).
- Cat. 3: $50 million =< $100 million (27 tokens).
- Cat. 4: $100 million =< $500 million (49 tokens).
- Cat. 5: market cap larger than $500 million (31 tokens).
Next, let’s visualize the findings:
Blacklists included: The distribution is quite even with tokens with a market cap between $1 million to $50 million being affected most often.
Creator owns > 50% liquidity: In general, this safety issue occurs the least often.
Proxy contract: Projects from all categories showed this issue. It is striking that more than 40 percent of projects with a market cap of less than $1 million are affected.
Pausable contract: This safety issue also occurs relatively frequently in most categories. Among the top 500 tokens, however, those with a market cap of less than $1 million were unaffected.
Buy/Sell Tax: High taxes occur more frequently with decreasing market cap, but not in the projects I analyzed with a market cap of less than $1 million.
Hidden Owner: This safety issue occurred in all categories. Tokens with a market cap over $500 million were affected most frequently.
Overall we don’t get a clear picture. Some safety issues occur more often in projects with higher market caps, in other cases, the distribution is reversed. With the ‘Proxy Contract’ and ‘Hidden Owner’ safety issues, however, it is noticeable that projects with a market cap of less than $1 million seem to be affected disproportionately often.
Safety Issues vs Holders
In this part, I examined whether tokens with fewer holders had more safety issues. Same as above, the number of holders is divided into several categories.
- Cat. 1: less than 1K holders (42 tokens)
- Cat. 2: 1K =< holders < 10K (217 tokens)
- Cat. 3: 10K =< holders < 50K (140 tokens)
- Cat. 4: 50K =< holders < 100K (43 tokens)
- Cat. 5: more than 100K holders (61 tokens)
Blacklist included: Even distribution among the different categories.
Creator owns > 5% liquidity: On average, tokens with less than 1K holders have slightly more owners who have more than 5% of the liquidity.
Proxy Contract: Fairly even distribution, although this safety issue is a bit less common for projects larger than 100K and smaller than 1K.
Pausable Transfers: Even distribution.
Buy/Sell Tax: Even distribution. Only projects with 50–100K holders are below the trend.
Hidden Owner: Fairly even distribution, although there seem to be a bit more hidden owners in projects with more than 100K and less than 1K holders.
The number of holders does not seem to be significantly influenced by the occurrence of safety issues. I suspect that this is because the majority of holders are not aware of these issues.
Safety Issues vs Chains
Finally, I analyzed which chains have the most tokens with safety issues. Here is a list that shows how the top 500 L2 tokens are distributed among blockchains:
- Arbitrum: 30 tokens
- AVAX: 14 tokens
- BNB: 191 tokens
- ETH: 190 tokens
- Fantom: 20 tokens
- Optimism: 11 tokens
- Polygon: 41 tokens
Now let’s see what the percentage distribution of safety issues by chain looks like.
Blacklists included: Only BNB (15%) and ETH (8%) stick out here.
Creator owns more than 5% liquidity: Overall not a major issue with AVAX (7%) leading.
Proxy Contract: ARBITRUM (28%) and POLYGON (39%) are affected relatively often here.
Pausable Contract: This issue can be found most often on BNB (18%) and ETH (14%) blockchains.
Buy/Sell Tax: High buy/sell taxes occur disproportionately often on the BNB (42%) chain.
Hidden Owner: Hidden owners occur relatively frequently with tokens on all chains. ARBITRUM (44%) and POLYGON (49%) lead here.
Generally speaking, AVAX, FANTOM, and OPTIMISM seem to be the blockchains on which safety issues occur the least. BNB, on the other hand, seems to be affected relatively often. I can’t really say anything about the reasons for this, since I do not have sufficient knowledge about the structure of the individual chains and the development of smart contracts.
Conclusion
In summary, it can be stated that there is no relation between the existence of the safety issues described and the size of the market cap or the number of holders of individual projects. However, clear connections can be made between the occurrence of certain issues and the blockchains used by tokens.
With all this, however, the limitations of this analysis should not be forgotten:
- The sample size is not large.
- The number of tokens on different chains and in different market cap and holders categories is not evenly distributed.
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