The decentralized finance farming clones are appearing thick and fast. The latest, a token called HOTDOG, didn’t even make it a day before it crashed down on token holders.
In less than a week, we have seen the emergence of Sushi, Kimchi, Pizza, and now Hotdog has come and gone in just a few hours as tokens are pumped and then dumped on yield farmers.
All these tokens share similar concepts and strategies:
- Pilfer code from an established protocol—Uniswap in this case.
- Set up a website and assign it a food name.
- Launch the worthless token on Uniswap while promising insane returns and protocol governance for holders.
- Wait for farmers to pile in and pump the token price and yield rates.
Yam Finance started it all off when it cloned Yearn Finance to offer its own 100% community governed platform. Liquidity farmers piled in to snap up YAM tokens, but a code bug in the smart contract eventually killed the project.
DeFi Hotdogs Go Cold
Just like SushiSwap and Kimchi before it, Hotdog.Swap is another Uniswap clone offering its own native token and total community governance. Hotdog promised insane returns of over a million percent APY to lure liquidity providers.
According to its plagiarized website, liquidity providers could deposit Uniswap liquidity pool tokens to earn HOTDOG tokens. This would entitle them to continue to earn a portion of the protocol’s fees accumulated in the said token, even if liquidity provisions were withdrawn.
Hotdog.Swap was launched on Sept 2, providing a mostly illiquid token, which surged to over $6,000, according to the Uniswap analytics dashboard, Uniswap.info.
Anyone can add a token to Uniswap, but they need to provide another, ETH, in this case, to give it liquidity.
As industry analyst Camila Russo noted in her latest Defiant newsletter, controlling the supply of ETH relative to the token enables the provider to set an inflated price for a highly illiquid token.
HOTDOG token prices skyrocketed as farmers feeling the FOMO piled in, and within seven hours, it was trading on Uniswap for $6,250.
The dump that followed was swift and painful for those that did not get out in time. In the span of fewer than two hours, the token dumped to sub-dollar levels, marking a collapse of 99.98%. At the time of press, HOTDOG was trading at $0.0185, and virtually all its liquidity has evaporated.
TrustSwap CEO Jeff Kirdeikis (@JeffKirdeikis) noted the frenzy and stated how dangerous these DeFi meme tokens could be:
Exhibit A on the danger of yield farming memecoins.
Hotdog just went from $4,000 to $1 in five minutes. pic.twitter.com/8CPwTFx4Ad
— Jeff Kirdeikis (@JeffKirdeikis) September 2, 2020
Others, such as trader Edward Morra (@edwardmorra_btc), added that the state of the market is worse than Bitconnect. And it wasn’t just HOTDOG that dumped; the same thing happened to a token called PIZZA and another called ONLYUP.
According to Uniswap.info, a spurious token from Pizza Finance pumped to $370 then dumped to zero within two hours on Sept 2.
Speaking to the Defiant, investor Arthur Cheong likened the current scene to musical chairs, adding that the early farmers make money while there is still liquidity to exit. Then, the latecomers that were providing liquidity for that specific token will lose money when the first farmers start cashing out. This appears to be precisely what has happened to Hotdog.
DeFi copycats don’t seem to be slowing up, and the scene is beginning to be reminiscent of the 2017 altcoin pump and dumps that eventually spurred a wave of regulation, anti-money laundering (AML), and know your customer (KYC) requirements.
At this rate, it likely won’t be long before global regulators try to crack down on DeFi with their heavy-handed approaches.
What’s With Kimchi?
Kimchi was another hot platform in the DeFi space that was launched on Sept 1. It seems that the hype has nearly died out, though, as KIMCHI token prices dumped from $10 down to $2.70, according to Uniswap.info.
Kimchi is a copy of Yuno Finance, which itself copied SushiSwap to offer better returns on Uniswap liquidity pool tokens. The platform rapidly accrued liquidity within 24 hours of its launch, and at the time of press, the total value locked has surged to $144 million, according to the Kimchi Finance dashboard.
It was discovered that code in the smart contract would allow KIMCHI tokens to be minted by the owner but time-locked indefinitely, which is an improvement over Sushi, which only had a 48 hour time lock. This theoretically prevents the admin account from taking over the token stash.
Sushi Gets Security Review, Token Prices Up, But Still Risky
SushiSwap, which started this entire vampire mining craze by leeching liquidity from Uniswap, has just been reviewed by Quantstamp for security issues. During the process, the firm discovered two medium risk issues, three low risks, and five informational.
— Quantstamp (@Quantstamp) September 2, 2020
The results have lifted SUSHI token prices around 40% over the past day as they climb to $8.73, according to Uniswap.info. It should be noted that this is not a full audit. SushiSwap tokens peaked at $11 on Sept 1 before falling back to a low of just above $6.
The review appears to have restored some investor confidence; however, others are already getting cold feet (or plates in this case).
Partner at Cinneamhain Ventures, Adam Cochran (@AdamScochran), commented on the $27 million that was sitting in the Sushi admin account on Sept 2. He stated today that he had exited his position due to these funds not moving and the risk of a dump following this Quantstamp driven pump.
Disclosure: Exiting the last of my $Sushi position. Founder still hasn’t moved on locking funds & is now purposefully calling a ‘security review’ a full audit. This pump opportunity puts fully diluted value at nearly $2b mcap. Too much risk here, & not much upside left. I’m out.
— Adam Cochran (@AdamScochran) September 3, 2020
There is an inherent risk with unaudited smart contracts, especially when it’s possible for backdoors enabling administrators to make off with the funds. However, it is a free market at the moment, and part of the ethos of that is being displayed through both the good and the bad in human nature.
Today’s hot ‘DeFi food’ offerings appear to be something called Sumo Finance, which is offering a RAMEN token to early adopters, and another Sushi fork called Shroom Finance. It should be noted, though, that in DeFi, just as in real life, there is no free lunch, so do your homework before you tuck in.