8 Ways to Check if a Token is a Scam

Original Title: 8 Ways to Check If It's a Token Scam

Author: Darius Dev ė nas, DappRadar

Compiled by: Felix, PANews

The blockchain industry is filled with promises of quick and easy money. It is crucial to identify which projects are safe and which are destined to fail in three months. This article presents eight methods to help traders avoid effective scams.

1. Start with the Basics

To verify the legitimacy of a token, you can start with the most accessible methods. For example, Google searches and Twitter, including researching the token and its team, checking for any red flags or warning signs, and looking for reliable sources of information such as official websites, news articles, and verified social media accounts.

Check for Social Media Red Flags

Verified X (Twitter) accounts can often help prove the legitimacy of a project. Additionally, you can participate in discussions about the token to understand the community's views and opinions.

Be cautious of projects that have a large following on social media but low engagement. Automated comments from fake accounts should also be a red flag. If all the comments say "This is a great project" and "Moon is coming," be wary.

Check Token Address on Google Search

If you can't find a clear homepage, "white paper," or obvious use case for the token when searching online, it is likely a scam. When searching for the token address, you should easily find links to block explorers, official websites, and white papers. If not, consider it a red flag.

Also, be aware that Google ads are often a free zone for scam websites. Never click on ads at the top of Google search results. Make sure you are visiting the official website to avoid clicking on Wallet Drainers (malicious scripts targeting crypto wallets that transfer assets to attackers) or other hacking software.

2. Verify Code on Etherscan

Visit the block explorer for your chosen chain and check if the source code is verified. For example, on Ethereum's block explorer Etherscan, it should look like the image below. The code in the image below is not verified, which should be an obvious warning sign. If the code is not verified, you may be encountering a scam.

Why Scammers Don't Verify Their Code Directly

Once the source code of a contract is public, everyone can know the intentions behind the contract. It could be a ridiculous token scheme or a way for developers to steal all your tokens. But does this mean that every unverified contract is a scam? Not necessarily, but it is a very serious red flag.

3. Check the Comments Section on Etherscan

This part is very simple; most block explorers have a comment section. Most of the time, there are no comments, but if a project is a scam, you might find a group of angry people in the comments section. So be sure to click and check. If someone says it’s a scam, there’s a 99% chance it is a scam. If you are a victim of this project, please leave a comment as well.

4. Check the DappRadar Blacklist

You can compare the token address against the token blacklist compiled by DappRadar on GitHub. If the token address appears on the list, it is a scam.

5. Check Token Details in Token Indexes

If you can't find the token on CoinGecko or DappRadar's token index (or similar token price trackers), then the token is likely a scam. If you see a warning like the one in the image below, proceed with caution:

All legitimate tokens share their information with token index websites for verification. However, platforms like CoinMarketCap and Coingecko require certain specific conditions to be met. Therefore, not all tokens (regardless of legitimacy) will automatically be listed on these token index platforms.

6. Check How Many Exchanges List the Token

If the token is only traded on a few decentralized exchanges (DEX), it may be a scam. Listing on centralized exchanges requires KYC and additional trust; the larger the exchange, the better the reputation of the listed token.

However, not all tokens listed only on DEXs are scams. Some projects do not require high trading volumes, and some cater to Web3 users rather than token traders.

That said, tokens listed only on DEXs are a higher-risk investment, and you are more likely to encounter scams. The left side of the image below shows a token used only on DEXs, while the right side shows a token available on multiple CEXs.

7. Check the Liquidity in the Token Balance Pool

Before investing in a token, you may want to check the overall demand and availability of liquidity. It is very easy to check the liquidity of a token on platforms like Uniswap V2 or other DEXs.

Liquidity refers to the amount of cryptocurrency or tokens locked in a smart contract, allowing users to buy and sell assets through a (decentralized) exchange. If liquidity is below $100,000 or is rapidly declining, you may be encountering a scam.

When using DEXs, be sure to check other basic on-chain activities, including:

• Trading volume
• Number of trades
• Independent active wallets interacting with the smart contract— the number of users connecting to the DEX using Web3 wallets.

If any of these seem unusual, do further investigation.

8. Use Third-Party Analysis Tools

Here are some token analysis tools:

Smell Test: Automatically audits tokens. A perfect score is 100, and the lower the score, the more likely it is a scam.

Honeypot: A honeypot is a smart contract that deliberately inserts obvious programming flaws. When an attacker exploits this flaw, another hidden piece of code is activated, countering the attacker. Whether or not you intend to become a crypto hacker, honeypots should be avoided.

DEXtools: Records real-time prices of tokens and will help you assess the true value of a token in real-time.

Whether on the blockchain or in the real world, scammers always exist. By following these recommendations, you should be able to avoid those fake tokens designed to steal your funds.