The blockchain security company CertiK disclosed how a new generation of scammers is changing their tactics to target automated trading bots in the wake of the LIBRA meme currency fiasco, in which insiders were given advanced information of the launch procedures.
Kang Li, the chief security officer at CertiK, told Decrypt last week at Consensus in Hong Kong that some smart contracts are intentionally made to target the snipers.
The observations follow Hayden Davis's description of such ventures as a "zero-sum game" in which only a few have power. Davis is the self-described "launch strategist" for LIBRA and other celebrity meme coins.
Even at the top, all of it is extractive to some degree—none of it has value, Davis stated in an interview with Coffeezilla's Stephen Findeisen last Sunday. He explained how "professional snipers" are involved in meme coin launches, front-running a token and loading up to buy in before a launch is made public.
Smart contract sniping is a technique in which bots watch on-chain activity for newly issued tokens and execute deals before human traders can react. These bots use on-chain technology and are trained to execute trades as soon as liquidity becomes available. According to Li, a new breed of shrewd fraudsters is creating fake tokens with hidden "backdoors" that appear secure to AI-powered trading bots trained to identify security issues.
Although these artificial intelligence trading bots "are not dumb" and examine tokens "to see if you have any clear rug-proofing function there," Li noted that scammers have exploited this as a bait-and-switch tactic.
Following the launch of a token, the scammers "immediately promote [this] in all the AI trading community," and "once they have a few buys, they rug pull it," Li added.
Li refutes the notion that blockchain security is unnecessary for meme coins and pump-and-dump operations, claiming that the actual risks are in who controls the token, price manipulation, and the history of those behind it. These scams are taking place on a "massive scale," potentially resulting in losses of "tens of millions of dollars," according to Li. With no fear of legal repercussions, scammers 'simply keep destroying' trading bots, taking advantage of a victim.