The SnowdogDAO Case Report; How To Avoid Future Scenarios
The Snowdog (SDOG) project rug pull has resulted in a “war of words” between the token creators and the general public. The public is saying, “you knew this was going to happen right from the start,” and the SDOG team is rebutting, saying that “it was a game-theory experience” and “we make a mistake.” The sophistication and intricacies associated with the event have made Lossless keenly interested.
Whatever the stance of the SDGO team, or their excuse, it remains that the event is one of the greatest and priciest scams to ever happen on the Avalanche blockchain. After the $SQUID scam, one would think malicious actors will be out of ways to trick people of their investments. However, the SDOG project had every characteristic of an excellent investment but had some shady and foggy business dealings. Just the right mix for a successful rug pull.
SDOG was intended to be a reserve meme coin for the DeFi project, Snowbank, allowing users only 8 days to accumulate SDOG tokens through staking, minting, or buying. After which, there will be a wide-scale buyback at an increased unit valuation. The funds for the buyback were to be financed by the Snowdog treasury.
Thanks to the PR and the buzz surrounding a possible Dogecoin killer hosted on Avalanche (AVAX) and the team banking on FOMO syndrome, the treasury grew to $44 million in MIM in 8 days.
The moves made by the project seemed like it was made for stars, which the business model indeed supported. As mentioned earlier, some truths were hidden from the public. Which was, only 7% of SDOG’s supply qualified for the above-market price sales before the buyback.
The Finer Details
Snowdog had its automated market maker (AMM) based on Uniswap v2 and transferred the entirety of its liquidity from the Avalanche DEX, Trader Joe. The minute the live trade began, there was an apparent hike in the price to about $70,000 from $1,320 it traded on Trader Joe. Although the buyback process failed, a couple of addresses were found to profit, raking in as much as a cumulative $20 million worth of MIMs.
The first address exchanged over $180,000 worth of MIM for SDOG the day before the buyback in multiples of $10,000 and staked the coin. A few minutes into the buyback saw them exchange 187.8 SDOG for MIM at ~$55,000, which amounted to $10.4 million.
Two other addresses were able to share the spoils implementing the same strategy. They carted away with around $7.7 and 3.397 million in MIM.
Arriving at the Rug Pull Conclusion
Piecing two and two together started to expose the grand scheme underneath. And in a bid to save face and come off as credible in the wake of the buyback failure, the team released a report.
First off, the move to create a custom AMM was to even the playing field so that no one (bots or MEV searchers) sets a prior transaction based on insider’s information, according to the team. They made it even harder by introducing a password that was a mathematical problem from the front-end of Snowbank.
However, the report went on to say the team accepts the responsibility for the failure ONLY in part of not divulging the 7% buyback clause.
How can the team deny that it was not an insider’s job when:
- Both addresses were only available a day before the buyback and funded just hours apart
- The accounts didn’t initiate buyback on Trader Joe but on the custom AMM made by Snowdog
- The password could only have been known by members of the team who may have had access just before the buyback went live.
Heck, the floor price had nosedived to below the pre-buyback price ($1,200) 36 seconds into revealing the password! The timestamps are too close to deny there is no foul play.
How to Identify Rug Pulls
The play of events by Snowdog tells a tale of high levels of sophisticated cunningness. Going forward, the Lossless team would want to educate crypto, and non-crypto fanatics on how to spot rug pulls from a mile away. Some of the features of a potential rug pull include:
- Substandard documentation: You will probably never go wrong reading through the pitch deck, litepaper, and whitepaper. These documents should be able to answer your questions. If any of these documents seem hurriedly prepared with one too many errors as it was with $SQUID, we recommend you run the other way.
- Anonymous developers: This is one of the hallmarks of a token with a rug pull in sight. Anonymity is often a clever play by developers to embody the virtues of blockchain. Some teams are anonymous and credible; others wear the invisibility cloak to make it easier to vanish with your money.
- A sudden increase in valuation: Now, this is sometimes a ploy by fraudsters to poke at investors’ FOMO psyche. Sudden increases are usually due to influencer marketing and buzz, and nothing genuine like groundbreaking decentralized exchange listing.
- Unrealistic high yield percentages: If APYs and APRs are audacious, it could be genuine or not, but it is probably an attempt to draw investors searching for uncommon ROI. Take extra care when you come across such projects.
- Flawed tokenomics model with a large percentage owned by developers: Coins with large central supply control are often scams, especially if the numbers on its whitepaper and pitch deck differ from actual token distribution. You can use Etherscan, Avascan and BSCscan to check for distribution models if the coin is based on Ether, AVAX, and Binance Smart Chain, respectively.
- Absence of use cases or the presence of unexplainable ones: Investors are beginning to become aware that use cases are one of the pointers to a token’s credibility. That said, scammers often promise use cases and conceal them with aggressive marketing campaigns to fool investors and achieve faux credibility status.
- Inactive community and social media channels: If a community does not support querying or questioning the project, or if community members don’t get responses to their questions, the project is most likely a scam.
Snowdog painted the creaky lake house in the bright colors of a scalable blockchain and a seemingly credible DeFi project backing it. And the public bought the idea until the storm the team cooked up blew the shaky foundation of the project.
Still desperate to appear credible, the team has promised utility for the token on Snowbank through SDOG-MIM minting, SDOG-MIM liquidity, Trader Joe listing, and DAO governance. But the fact remains that hundreds of holders of SDOG have lost their money, and the not so unlucky ones are unable to sell off the token as it has lost over 90% of its value.
Lossless is built explicitly for situations such as these, reducing investors’ losses to the minimum through freezing and refunding cash and token.
Lossless is the world’s first DeFi hack mitigation tool for token creators. Apart from our known cyber security solutions and renowned professionals, the community also plays a role. With a tangible reward system, community members are also encouraged to explore new ways to detect hacks and fraudulent transactions.
Our protocol halts counterfeit transactions through various methods of fraud identification and automatically reverses any stolen tokens back to the original owner. Our solutions to the impending problems of cyber theft within the blockchain space are thorough and applicable within many protocols.