Decentralized finance (DeFi) has been getting the attention of a lot of new users that wants to join the cryptocurrency space. Unfortunately, this rapid growth has also attracted malicious actors seeking to take advantage of the enthusiasm surrounding the DeFi space to manipulate and execute scams against honest participants.
Anyone can easily mint a token.
It is the user’s responsibility to know the tokens they are investing in. The Trust Wallet app cannot really tell if a project is legit unless it has been manually added to our asset database after a careful review.
The process of listing a token on a Decentralized Exchange (DEX) like Uniswap or PancakeSwap or 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.
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 are common on decentralized exchanges like Uniswap or PancakeSwap where the Ethereum (ETH) or Binance Smart Chain (BNB) 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.
In a dump airdrop, the goal for the developers is to generate short-term buzz about a token so that people will be eager to buy it when it hits exchanges. The developers quickly sell (dump) all their tokens and they just disappear and the project becomes inactive.
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.
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 a token by going via a trusted source, such as the CoinMarketCap or CoinGecko crypto tracking websites. You can search for the token, on these sites and see the active trading pairs available on Decentralized exchanges.
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.
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.