Coinbase’s New Blockchain: A Breeding Ground for Scam Tokens?

Decentralisation, a core tenet of the blockchain world, is not a one-size-fits-all concept. While developers often boast about their projects being governed purely by code, the reality is that not all blockchains and protocols are created equal. This distinction becomes crucial when considering the recent surge of scam tokens on Coinbase’s new blockchain.

Coinbase, a leading name in the crypto industry, recently launched a layer-2 blockchain built atop Ethereum named Base. Even before its official unveiling last week, Base was already under scrutiny for being a hotbed for scam tokens. A notable instance was the Bald token incident, where an intelligent developer exploited a liquidity pool, converting a mere $500 into a staggering $1 million in just one day in late July, leaving many investors in the lurch.

The Magnitude of the Scam Token Issue

Solidus Labs, a renowned crypto security firm, has shed light on the gravity of the situation. Their recent data reveals that the Bald token was merely the tip of a massive iceberg. Solidus identified a whopping 516 tickets on Base with code intentionally crafted to deceive potential investors. These deceptive tactics range from hiding transaction fees to creating honeypots, which prevent buyers from reselling their tokens. These tokens have already seen a trading volume of $3.7 million, with 100 traded within the last week.

Chen Arad, the co-founder of Solidus, emphasised that this problem is common to Base. Scammers are opportunistic, gravitating towards anything that generates buzz. Decentralised exchanges on blockchains are no exception, pulling in tens of millions in trading volume. The open nature of Base, like many public blockchains, allows anyone to mint tokens, making it easy for scammers to exploit the influx of newcomers.

Who Bears the Responsibility?

The surge of scam tokens on Base raises a pressing question: Who should shoulder the responsibility for this menace? The immediate answer might be the users. After all, they should exercise caution when diving into new projects. To aid users, Solidus Labs offers a tool named Token Sniffer. This tool allows users to input token names or addresses and receive an audited analysis, assessing the token’s legitimacy based on various factors.

However, placing the onus solely on users might seem unjust. It’s a valid expectation for users to hope that not every new project they encounter is riddled with scams. This leads to the next potential responsible party: Coinbase itself. As the creators of Base, they could implement stricter token-minting criteria. However, Jesse Pollak, the lead for Coinbase protocols, countered this notion in a recent Twitter post. He asserted that Coinbase is entirely permissionless and decentralised, implying that they don’t wield “full control” over Base.

Decentralisation, Regulation, and the Future of Crypto

While some might find it challenging to equate Base’s decentralisation level to that of Bitcoin, others might believe that “code is law.” Yet, there’s another player in this scenario: regulators. Both state and federal regulatory bodies don’t necessarily prioritise decentralisation as the crypto community does. A case in point is the Ooki DAO incident, where the CFTC targeted the project’s founders and its participants for running an unlicensed trading platform.

Historically, crypto regulation has been reactive, primarily focusing on enforcement actions and litigation against scams and other illicit activities. However, the transparent nature of blockchain offers an opportunity for a more proactive regulatory approach. Agencies like the SEC or CFTC could employ tools like Token Sniffer to clamp down on scam tokens. If they adopt such a strategy, the question remains: Would they target the token creators or platforms like Coinbase?

In response to the ongoing debate, a representative from Coinbase stated, “We welcome clear regulation that balances consumer protection while also supporting innovation.” As the crypto landscape evolves, one thing becomes clear: while the dream of complete decentralisation is enticing, the reality is that some form of oversight is inevitable.

Conclusion

The crypto world stands at a crossroads, balancing the ideals of decentralisation with the practical needs for security and oversight. While the allure of a fully decentralised system remains a foundational pillar for many in the crypto community, the increasing instances of scams and illicit activities underscore the necessity for some level of regulation. As platforms like Coinbase advocate for a harmonious blend of consumer protection and innovation, the future of crypto will likely involve a collaborative effort between developers, users, and regulators.