How to check if a token is a scam and increase the chances of making a profit?

Author: GeekTop, Web3 Insights

Modern blockchain is filled with promises of quick and easy money. However, it is crucial to understand whether the tokens you hold are part of a carefully orchestrated scam designed to steal your hard-earned money. With thousands of different meme coins being issued regularly, it becomes increasingly difficult to determine whether a token is safe and free from fraud.

In this article, we will explore effective methods to check if a token and its project are fraudulent. These methods can help you avoid scams and increase your chances of achieving profitable growth!

To check the legitimacy of a token, you can always start with the easiest methods available, such as searching on Google and Twitter. This includes researching the token and its team, checking for red flags or warning signs, and looking for reliable sources of information such as official websites, news articles, and verified social media accounts.

Check Tokens on Twitter and Telegram

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

Be cautious of projects with many social media followers but little activity. Automated comments from spam accounts should also raise red flags. If all comments are "This is a great project" and "To the moon soon," be wary.

To check token information on Twitter, enter: $TICKER in the search bar.

Alternatively, use #TOKEN_NAME to find more information about the project:

If the token was recently launched, check for the first news about the token. To do this, enter $TICKER in the search bar and scroll to the bottom of the feed.

Typically, the first news about a token comes from news bots or influencers, such as in the following case:

An important factor is to research the project's profile on Twitter. If it posts repetitive news and uniform calls to buy, the likelihood of a scam increases.

To find token projects on Twitter, go to DexScreener and insert the token's contract (e.g., Ponke - not financial advice):

In the upper right corner, you will see the project's website, Twitter, and Telegram. By visiting these links, you can research the project:

If you cannot find any project links (no website, Twitter, or Telegram), this is a clear red flag indicating a higher likelihood of a scam.

When analyzing the project's Telegram, pay attention to the community's attitude towards the project. If the community strongly believes in and supports the project, this is a positive signal for potential short-term growth.

Check Token Address on Google Search

If you search online and cannot find a clear homepage, "whitepaper," or obvious use case for the token, it is likely a scam. When you search for the token address, you should easily find links to block explorers, official websites, and whitepapers. If not, consider it a red flag.

Additionally, be aware that Google ads are often a free zone for fraudulent websites. Never click on ads at the top of Google search results. Always ensure you are visiting the official website to avoid clicking on wallet drainers or other hacking software.

Check on Explorer

Visit the block explorer for the chosen chain to see if the source code is verified. For example, on Ethereum's block explorer Etherscan, it looks like this. The code shown below is unverified, which should be a clear warning sign. If the code is unverified, you may be dealing with a scam.

If you want to check tokens deployed on another network, use the following explorers:

Base ---https://basescan.org/

Solana------https://solscan.io/

Ton ---https://tonscan.org/

BSC ---https://bscscan.com/

Why do scammers not verify their code?

Because once the contract's source code is public, everyone can understand the intentions behind the contract. They will then see an absurd tax structure or a method for developers to steal all your tokens.

Check the Comments Section

This is straightforward, but various block explorers often have a comments section. In most cases, there are no comments, but if the project is a scam, you are likely to find a group of angry mobs in the comments section. So be sure to check it out. If someone calls it a scam, there is a 99% chance it is a scam. If you have become a victim of such activities, do not hesitate to leave a comment.

When analyzing a token, you can find the comments section in this line (example on Etherscan), but it is hidden for most tokens.

Check DappRadar Blacklist

DappRadar allows the community to help identify scam tokens. Once identified, you can add them to the token blacklist on GitHub.

Additionally, if you are researching a token, you can check the blacklist to see if your token is listed. If the token address is on the list, then that token is definitely a scam.

Check How Many Exchanges the Token is Listed On

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

Does this mean that tokens listed only on decentralized exchanges are definitely scams? No. Some projects do not require significant trading volume, while others may only offer tokens to Web3 users and not to token traders.

Since most meme coins show significant increases before appearing on CEX, having a token on CEX is not a strict criterion for token analysis.

However, cryptocurrencies listed only on decentralized exchanges represent a higher-risk investment.

To find out which exchanges list the token, go to Coingecko, enter the token address in the "search" bar, and select "markets":

If the token is listed on at least one CEX, that is a green signal. In this case, the token is listed on CEX: Bybit, BingX, Bitget, Gate.io:

Check the Token's Liquidity Amount

Before investing in a token, you can check the overall demand and available liquidity. It is very easy to check the liquidity of a token on platforms like Uniswap V2 or other decentralized exchanges.

Liquidity refers to the amount of cryptocurrency or tokens locked in smart contracts that allow people to buy and sell assets through (decentralized) exchanges. If liquidity is below $100,000 or has significantly decreased, you are likely encountering a scam.

You can check the liquidity amount on the well-known DexScreener; after entering the token contract, you can see the liquidity amount in the middle right section:

If a lock symbol appears next to the liquidity amount in a green circle, it indicates that the liquidity has been locked—this is another green flag for the project.

Additionally, it is important to consider the fully diluted valuation (FDV) or market cap. The larger these numbers, the greater the amount of buying required for the token price to rise.

A good indicator for such tokens is a liquidity amount starting from $1 million, a token age of over 2 days, and a liquidity/FDV ratio of about 1:10.

Check Third-Party Analysis Tools

Here are some token analysis tools:

Sniff Test------An automated audit of the token. The lower its score (out of 100), the greater the likelihood that the token is a scam.

Check tokens on honeypots. A honeypot is a smart contract that deliberately creates obvious software flaws. When an attacker tries to exploit the vulnerability, another hidden code is triggered, essentially attacking the attacker. Regardless of whether you intend to become a crypto hacker, you should always avoid honeypots.

Understand the Basics of DEXScreener

It records the current token price and helps you assess the true value of the token in real-time and identify major holders.

For example, to identify users who recently purchased tokens for over $5,000, click on "USD" at the bottom of DEXScreener:

Enter the amount of $5,000 (optional; you can specify the maximum token purchase amount) and press "Enter" or "Apply":

After that, all buyers who recently purchased tokens for $5,000 or more will be displayed:

You can also view the purchase areas of certain wallets. To do this, click on the cup icon next to the desired wallet, and then check all purchase areas and token purchase levels on the wallet chart:

Use De.Fi Antivirus Software to Analyze Tokens

De.Fi is a project that recently distributed airdrops to its community, acting as antivirus software by evaluating token contracts based on various parameters and providing an estimated safety score for the tokens:

Use TTF Bot

This multifunctional bot can quickly and automatically analyze tokens, which is very convenient for token hunters. Pay special attention to the amount of liquidity that is locked or burned. If liquidity is burned, that is a green signal.

Additionally, pay attention to the scale of the token's taxes. If the tax is zero, that is a definite red flag.

Furthermore, keep an eye on the number of holders and their share of the supply:

If the top 10 holders hold more than 30-50% of the token supply, the likelihood of encountering a scam is higher.

Conclusion

By using the analysis tools mentioned above, you can learn how to avoid scam tokens and profit from legitimate ones. However, always remember to do your own research (DYOR).