The Cryptocurrency world has been getting the attention of a lot of new investors that wants to join the cryptocurrency space. Unfortunately, this rapid growth has also attracted bad malicious actors seeking to take advantage of the enthusiasm surrounding the space to manipulate and execute scams against honest users.
Anyone can easily mint a token. It is the investor responsibility to research the tokens they are investing in.
Example of Token Scams
* Imitation Tokens
The process of listing a token on a Decentralized Exchange (DEX) like Uniswap, PancakeSwap, Raydium or Jupiter Dex is open to everyone. Scammers will generate a token that tries to imitate old and new legitimate tokens. Before a legit token is listed on a DEX, scammers are already able to list their own. They will use the same name and logo which can easily attract an uninformed user/ investor.
* Meme Coins
These meme coins may not essentially be fake coins with fake contracts. However, they usually promise token holders with exponential returns in an unrealistically short period of time. Such tokens typically have no utility besides the hype provided by the team’s marketing efforts.
* Rug Pulls
Rug Pulls are common on decentralized exchanges (DEX) where the Ethereum (ETH), Binance Smart Chain (BNB) or Solana (SOL) tokens that are on liquidity pools are suddenly pulled out by the token creators. This removes the ability for victims to sell the tokens which leads to a complete loss of their investments.
* Dump Airdrops
In a dump airdrop, the goal for the developers is to generate short-term hype about a token so that people will be eager to buy it when it hits exchanges. The developers quickly sell (dump) all their tokens on their community and they just disappear and the project becomes inactive.
How to Avoid Token Scams
The simplest solution is to Do your own Research (DYOR). You need to be aware of the project you are trying to invest in. As with any cryptocurrency project, invest only what you can afford to lose. We have some quick tips on how you can investigate the legitimacy of a token.
* Check for Smart Contract Audits
Genuine projects will and always have their smart contracts and code audited by professionals to ensure there are no bugs that could cause users harm. By doing so, you can already have a good idea if the project is safe and free from any malicious code that can frontrun any investor. CertiK is a company that conducts security audits for blockchain protocols, wallets, DApps, and smart contracts. Try searching for the project on their database.
* Verify Using Trusted Sources
Verify a token by going via a trusted source, such as CoinMarketCap.com or CoinGecko.com crypto tracking websites. You can search for the token, on these sites and see the active trading pairs available on Decentralized exchanges.
* Analyze Trade Volume or Liquidity
Once a token is already actively being traded, then value is determined and the app can show it properly. If there is low volume or liquidity on the exchange where the token is listed, this will immediately affect the price. Remember, the app only shows the estimated price of a token. So, it is always a must to check it directly on exchanges where you plan to sell them.
* Review The Project
Check the official website of the project and look for details like clear roadmaps, the team behind it and their social media accounts. Legit projects usually demonstrate social presence, interaction with the community and good reviews. Lacking these very important details could already mean that the project is not well thought out and could just be a scam.
*Contact : The Coin Counsel we can help in researching a good cryptocurrency Project to invest in.
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