Modern blockchain is full of promises of quick and easy money. However, it is crucial to understand whether the tokens you hold are part of a carefully planned scam designed to take your hard-earned money. With thousands of different meme coins being regularly released, determining whether a token is safe and free from fraud is becoming increasingly difficult.
In this article, we will explore effective methods for checking the legitimacy of tokens and projects to help you avoid fraud and increase opportunities for profit growth!
To check the legitimacy of a token, you can always start with the easiest methods, such as searching on Google and Twitter. This includes researching the token and its team, checking for danger signals or warning signs, and looking for reliable sources of information such as official websites, news articles, and verified social media accounts.
Checking Tokens on Twitter and Telegram
Verified Twitter accounts can often help establish the legitimacy of a project. Additionally, you can engage in token discussions to understand the community’s viewpoints and opinions.
Be cautious of projects with many followers on social media but minimal activity. Automated comments from spam accounts should also raise a red flag. If all comments are “This is a great project” and “To the moon”, proceed with caution.
To check token information on Twitter, search for $TICKER in the search bar or use #TOKEN_NAME to find more information about the project.
If the token is recently launched, first check the first news about the token. This news often comes from news bots or influential individuals.
An important factor is researching the project’s profile on Twitter. If it posts repetitive news and consistent calls to buy, the likelihood of a scam increases.
When analyzing a project’s Telegram, pay attention to the community’s attitude towards the project. Strong community belief and support are positive signs for potential short-term growth.
Checking Token Addresses in Google Search
If you search the internet and cannot find a clear homepage, whitepaper, or apparent use case for the token, it is likely a scam. When searching for token addresses, you should easily find links to block explorers, official websites, and whitepapers. If not, consider it a danger signal.
Also, be aware that Google ads are often free territory for fraudulent websites. Avoid clicking on ads at the top of Google search results. Make sure to visit the official website to avoid clicking on wallet cleaners or other hacker software.
Checking in the Explorer
Visit the block explorer of the selected chain to see if the source code is verified. For example, on Etherscan for Ethereum, verified code looks like this. Unverified code, as shown below, should be a clear warning signal. Dealing with unverified code may indicate a scam.
If you want to check a token deployed on another network, use the following browsers: Base, Solana, Ton, BSC.
Why don’t scammers verify their code? Because once the contract’s source code is public, anyone can understand the contract’s intent. They may see a ridiculous tax system or a way for developers to steal all your tokens.
Check the Comments Section
This is simple, but most block explorers 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 mobsters in the comments section. So be sure to check. If someone calls it a scam, 99% of the time, it is a scam. If you have been a victim of such activity, do not hesitate to leave a comment.
When analyzing tokens, you can find the notes section (example on Etherscan), but for most tokens, it is hidden.
Check DappRadar’s Blacklist
DappRadar allows the community to help identify scam tokens. Once identified, you can add it to the token blacklist on GitHub.
Additionally, if you are researching a token, you can check the blacklist to see if your token is on the list. If the token address is on the list, then the 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, and the larger the exchange, the better the reputation for listed tokens.
Does this mean that tokens listed only on decentralized exchanges are always scams? No. Some projects do not require a large volume of trading, while others may only offer tokens to Web3 users, not token traders.
Since most meme coins show significant gains 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 higher risk investments.
To find out which exchanges list the token, go to Coingecko, enter the token address in the “search” bar, and then select “markets”.
If the token is listed on at least one CEX, that’s a green signal. In this case, the token is listed on CEXs such as Bybit, BingX, Bitget, and Gate.io.
Check Token Liquidity
Before investing in a token, you can check the overall demand and available liquidity. Checking a token’s liquidity on platforms like Uniswap V2 or other decentralized exchanges is very easy.
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 dealing with a scam.
You can view liquidity on well-known DexScreener platforms by entering the token contract and seeing the liquidity amount on the right side middle section.
If there is a lock symbol inside a green circle next to the liquidity amount, it means the liquidity is locked – another green flag for the project.
Additionally, considering the Fully Diluted Valuation (FDV) or market cap is important. The higher these numbers, the larger the purchase volume required for the token price to rise.
Good indicators for such tokens are liquidity amounts starting from $1 million, token age 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 – automatically audits tokens. The lower the score (out of 100), the higher the likelihood the token is a scam.
Check for tokens on honey pots. Honey pots are smart contracts deliberately designed with obvious software flaws. When attackers try to exploit the loophole, they trigger another hidden code segment that essentially attacks the attacker. Whether you intend to be a crypto hacker or not, always avoid using honey pots.
Understanding DEXScreener Basics
It records current token prices and helps you assess the token’s real value in real-time and identify major holders.
For example, to identify users who recently purchased tokens for more than $5,000, click on “USD” at the bottom of DEXScreener.
Enter the amount $5,000 (optional, you can specify the maximum token purchase amount) and press “Enter” or “Apply”.
After that, all buyers who have recently purchased tokens for $5,000 or more will be displayed.
You can also view purchasing regions for specific wallets. Click on the cup icon next to the desired wallet, then view all purchasing regions 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 estimates of token security balances.
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 locked or destroyed liquidity. If liquidity is destroyed, it is a green signal.
Also, pay attention to the token’s tax scale. If the tax is zero, it is a definite fact.
Additionally, pay attention to the number of holders and their supply volume. 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 above analysis tools, you can learn how to avoid scam tokens and profit from legitimate tokens. However, always remember to do your research (DYOR).
