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A Sea of Coins: The Proliferation of Cryptocurrencies in UniswapV2

Author

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  • Manuel Naviglio
  • Francesco Tarantelli
  • Fabrizio Lillo

Abstract

Blockchain technology has revolutionized financial markets by enabling decentralized exchanges (DEXs) that operate without intermediaries. Uniswap V2, a leading DEX, facilitates the rapid creation and trading of new tokens, offering high return potential but exposing investors to significant risks. In this work, we analyze the financial impact of newly created tokens, assessing their market dynamics, profitability and liquidity manipulations. Our findings reveal that a significant portion of market liquidity is trapped in honeypots, reducing market efficiency and misleading investors. Applying a simple buy-and-hold strategy, we are able to uncover some major risks associated with investing in newly created tokens, including the widespread presence of rug pulls and sandwich attacks. We extract the optimal sandwich amount, revealing that their proliferation in new tokens stems from higher profitability in low-liquidity pools. Furthermore, we analyze the fundamental differences between token price evolution in swap time and physical time. Using clustering techniques, we highlight these differences and identify typical patterns of honeypot and sellable tokens. Our study provides insights into the risks and financial dynamics of decentralized markets and their challenges for investors.

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  • Manuel Naviglio & Francesco Tarantelli & Fabrizio Lillo, 2025. "A Sea of Coins: The Proliferation of Cryptocurrencies in UniswapV2," Papers 2502.10512, arXiv.org.
    • Handle: RePEc:arx:papers:2502.10512
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