What is rugpull risk and how do we mitigate it?
Understanding Rugpulls and How SafeMemes Mitigates Risks
In the world of cryptocurrency, a "rugpull" refers to the sudden withdrawal of liquidity, leaving token holders with tokens that could be worthless or worth very little. Rugpulls can be intentional or even unintentional, and they can be committed by anyone—not just token creators. Large token holders, for example, can manipulate the market by selling off significant quantities of tokens, causing a rapid collapse in value. These vulnerabilities can arise at various levels within the blockchain stack, from the token's creation to its interactions on exchanges. At SafeMemes, we are committed to mitigating these risks by offering tools and mechanisms that ensure transparency, security, and long-term trust in the tokens launched on our platform. Below, we outline key risk categories associated with token creation and how SafeMemes addresses them for users.
Risk Categories
Blockchain Risk
Risk Exposures:
- Blockchain choice
Risk Factor: Knowing how to deploy a token on a blockchain.
Risk Factor: Which blockchain to use.
Our Risk Control: You can choose from multiple blockchains to deploy a token on.
- Blockchain Downtime
Risk Factor: Blockchain forking can lead to a "false downtime" if your transactions are on the fork.
Risk Factor: Having a leader-based blockchain validator implementation.
Our Risk Control: We'll provide live blockchain data to give you more decision power.
- Transaction Fees
Risk Factor: Blockchain or DAG-style architecture.
Risk Factor: Block size and number of transactions.
Our Risk Control: We choose the blockchains that allow for future scaling to keep the transaction fees as minimal as possible.
Asset Layer Risk
Risk Exposures:
- Token Design and Creation
Risk Factor: Designing a token with improper parameters or code vulnerabilities can lead to exploits and inefficiencies.
Risk Factor: Inability to scale or adapt to future requirements, making tokens obsolete.
Our Risk Control: Our SafeMeme token is built to protect against known smart contract vulnerabilities.
- Rugpull via Disabled Transfer Function
Risk Factor: Token creators may disable the transfer function, preventing token holders from selling or transferring their tokens.
Our Risk Control: Our smart contracts do not allow disabling of the transfer function, ensuring token holders can always transfer or sell their tokens.
- Rugpull via Protocol Contract Mint/Admin
Risk Factor: Malicious actors may use admin privileges to mint excessive tokens, diluting the value of existing tokens.
Our Risk Control: Our contracts are immutable and do not have functions that allow minting additional tokens after deployment.
- Rugpull via Presale
Risk Factor: Project owners may collect funds during a presale and then abandon the project without delivering tokens or utility.
Our Risk Control: Our SafeLaunch mechanism ensures that funds collected during presale stages are automatically locked into liquidity pools, and tokens are distributed according to smart contract rules.
- Rugpull via User Tokens
Risk Factor: Malicious contracts may contain hidden code that can drain tokens from users' wallets.
Our Risk Control: Our contracts are transparent and audited, with no hidden functions that can access users' wallets without permission.
- Rugpull via Liquidity Removal from DEX/CEX
Risk Factor: Liquidity providers or project owners may withdraw liquidity from exchanges, collapsing the market.
Our Risk Control: Liquidity added through our SafeLaunch mechanism is locked and cannot be withdrawn by the token creator, ensuring market stability.
- Internal Rugpull
Risk Factor: Founders or project owners withdrawing liquidity suddenly.
Risk Factor: Lack of transparency in liquidity pool governance.
Our Risk Control: The SafeLaunch mechanism prevents liquidity from being withdrawn by the token creator.
- External Rugpull
Risk Factor: Large token holders selling tokens in a pump-and-dump style.
Our Risk Control: SafeMeme tokens have a max token allowance percentage that is no more than 3% of the token supply, though it could be lower depending on the token creator.
Exchange Risk
Risk Exposures:
- Sniper Bots
Risk Factor: Automated bots can quickly buy tokens during launch, causing unfair advantages and price manipulation.
Risk Factor: Bots may create artificial price hikes or dumps.
Our Risk Control: We implement bot protection measures such as rate-limiting and transaction validation mechanisms to prevent bots from dominating exchanges during launches.
- Interoperability
Risk Factor: Most exchanges are not compatible with an ERC-20 token with enhanced features, such as a max token allowance.
Our Risk Control: Our SafeLaunch mechanism creates a DEX specifically for your token.
- Functionality and Features
Risk Factor: The exchange’s inability to support key features such as locking liquidity to prevent rugpulls.
Our Risk Control: Our SafeLaunch mechanism is designed to prevent liquidity from being withdrawn and each exchange is created custom for each token.
- Future Uptime
Risk Factor: Unexpected downtime due to technical failures or external attacks can disrupt token trading and reduce user trust.
Risk Factor: What if the exchange decides to stop operating and close down?
Our Risk Control: Our smart contracts will be deployed onchain, though our dApp will be deployed on Arweave, so it will be permanently available after it goes live. If there is an internet connection, you and future generations will be able to interact with your token and our dApp.
Financial Risk
Risk Exposures:
- Liquidity Pairing
Risk Factor: Lack of sufficient liquidity may deter users from participating in token trading reducing overall market activity.
Risk Factor: Insufficient liquidity can result in volatile token prices, making it difficult for users to buy or sell tokens without significant slippage.
Our Risk Control: Our SafeLaunch mechanism allows for you to build liquidity over five stages of token sales and will automatically lock all of the liquidity earned with the remaining tokens you created.
- Not Earning Transaction / Swap Fees
Risk Factor: Poor liquidity pairing or low trading volumes can result in missed opportunities for earning transaction or swap fees, reducing the project's revenue stream.
Risk Factor: A lack of consistent fee income may make it difficult to maintain project sustainability over time.
Our Risk Control: Token creators earn fees on every transaction, forever.
- Not Earning Gas Fees
Risk Factor: Not all blockchains return a portion of the gas fees that their dApp generated back to the dApp.
Our Risk Control: Token creators will earn gas fees on every transaction forever when deployed on the Sonic blockchain.
- Not having insurance in case of a loss
Risk Factor: If your token loses value for any reason related to the exchange, will they reimburse you the lost value?
Our Risk Control: We have created an insurance fund that receives a transaction fee from every transaction and will be used in case of a loss of funds for our token creators to make them and their token holders whole.
Societal Risk
Risk Exposures:
- Concentrated Holders
Risk Factor: A small group of large token holders may have the power to manipulate the market price.
Risk Factor: The centralization of token ownership can deter new users from joining the ecosystem due to fear of market manipulation.
Our Risk Control: Anti-whale mechanisms are implemented to limit the number of tokens any single holder can possess to be between %0.01 and 3% of the token supply.
- Brand Creation and Recognition
Risk Factor: A weak or poorly developed brand identity can reduce user trust and engagement, limiting the long-term success of the token.
Risk Factor: Failure to create a strong community and positive brand association may result in reduced adoption and interest in the token.
Our Risk Control: SafeMemes.fun is designed for the creator and built to allow you to build a brand and to share it with others.
- Data Integrity
Risk Factor: Loss, corruption, or unauthorized modification of user data can lead to a lack of trust and potential legal issues.
Risk Factor: Without proper data storage solutions, maintaining long-term integrity and availability of user data can become a challenge.
Our Risk Control: All user-profile data is stored on the Arweave blockchain to ensure immutable, decentralized storage with 100% data integrity and long-term availability. This provides users with confidence that their data will always remain secure and accessible, and that it can be passed on to future generations.
Security Risk
Risks:
- Programming language
Risk: Vulnerabilities or bugs in the programming language used.
Risk Control: All smart contracts are written in Vyper which is designed to reduce errors and exploits.
- Exploit
Risk: Possible security exploits in smart contracts.
Risk Control: Our SafeMeme and SafeLaunch contracts are built to prevent exploits by using a non-Turing complete programming language, by reducing the complexity of the functions and features used throughout the smart contracts, and by using historical exploit data and how they were mitigated.
- Vyper's Security Features
Risk: Even with a secure language, improper use can still lead to vulnerabilities.
Risk Control: Vyper offers features like bounds and overflow checking on array accesses and arithmetic, strong typing with unit support, decidability for gas consumption, and limited pure functions. We leverage these to write secure and efficient smart contracts.
- Integer Overflow and Underflow
Risk: Arithmetic operations exceeding variable limits can cause unexpected behavior.
Risk Control: Vyper includes built-in checks for integer overflows and underflows, preventing these vulnerabilities.
- Reentrancy Attacks
Risk: Attackers can exploit recursive calls to re-enter functions, leading to inconsistent contract states.
Risk Control: Our contracts are designed to be non-reentrant by following best practices and using Vyper's limitations on recursive calls.
- Denial of Service with Unbounded Operations
Risk: Unbounded loops or operations can consume excessive gas, causing transaction failures.
Risk Control: Vyper restricts infinite loops and unbounded operations, mitigating DoS risks.
- Unchecked Call Return Values
Risk: Failing to handle errors from external calls can lead to unexpected contract behavior.
Risk Control: Our contracts explicitly check and handle return values from external calls to ensure reliability.
- Exact Balance Dependency
Risk: Relying on exact balances can be problematic due to gas costs or unforeseen state changes.
Risk Control: We design our contracts to avoid dependencies on exact balances, using safer methods to track and validate funds.
- Improper Data Validation
Risk: Inadequate input validation can lead to security breaches and exploits.
Risk Control: Our contracts enforce strict data validation and sanitization to prevent malicious inputs.
- Bad Coding Practices
Risk: Coding errors, bad patterns, deprecated features, misleading code, and missing logic can introduce vulnerabilities.
Risk Control: We adhere to best coding practices, regularly review code, and avoid deprecated or risky language features.
- Gas Costly Operations
Risk: Expensive loops and patterns can lead to failed transactions due to gas limits.
Risk Control: We optimize our code to minimize gas consumption and avoid costly operations.
- Authentication & Access Control Issues
Risk: Using tx.origin for authorization, wrong visibility settings, unprotected self-destruction, and off-chain access control can lead to unauthorized actions.
Risk Control: We implement robust access controls, avoid using tx.origin, and protect all sensitive functions and state variables appropriately.
- Arithmetic Bugs
Risk: Integer division errors, improper token handling, outdated compiler versions, and self-destruct issues can compromise contract integrity.
Risk Control: By using up-to-date compilers, careful arithmetic operations, and avoiding unnecessary self-destruct calls, we mitigate these risks.
- Missing or Incorrect Variables
Risk: Missing checks, callable initialization variables, and using wrong variables can lead to unintended behavior.
Risk Control: Rigorous testing and code reviews help ensure all variables and checks are correctly implemented.
- Upgradability Attacks
Risk: Improperly designed proxy patterns can be exploited, leading to loss of control over the contract.
Risk Control: Our contracts are immutable once deployed, removing risks associated with upgradability exploits.
- External Dependencies
Risk: Dependencies on external libraries like OpenZeppelin can introduce vulnerabilities if those libraries have flaws.
Risk Control: We minimize external dependencies and thoroughly audit any third-party code used in our contracts.
- Architectural Logic Flaws
Risk: Lack of validation and improper architectural design can lead to systemic vulnerabilities.
Risk Control: We employ best practices in contract architecture, ensuring comprehensive validation and logical consistency throughout.