Someone told you about a token. Maybe it was on Twitter, in a Discord, or from a friend who "got in early." Before you buy anything, run through this due-diligence checklist. It takes 10 minutes and can save you thousands.
Step 1: Check the Contract and Chain
Every token has a contract address. This is the unique identifier on the blockchain. Scammers often create tokens with the same name as popular projects but different contract addresses.
- Find the official contract address: check the project's official website, CoinGecko, or CoinMarketCap. Never trust a contract address from a DM or random post.
- Verify the contract is verified on Etherscan: go to Etherscan (or the relevant block explorer), paste the contract address, and check if the source code is published and verified. Unverified contracts are a major red flag.
- Check the deployer wallet: if the wallet that deployed the contract also deployed 50 other tokens that all went to zero, you have your answer.
Step 2: Analyze the Liquidity
Liquidity is the pool of assets that enables trading. Without sufficient locked liquidity, developers can drain the trading pool at any time, that's a rug pull.
🟢 Green flags:
• Liquidity locked via a time-lock contract (Unicrypt, Team.Finance)
• Lock duration: 6+ months minimum, ideally 1+ year
• Liquidity pool size: >$100K for serious projects
🔴 Red flags:
• Unlocked liquidity — devs can pull it anytime
• Very small pool (<$10K) — easy to manipulate price
• Liquidity lock expires in days/weeks
• "Trust us, we won't pull" (they will)Tools like DexScreener and DEXTools show liquidity status for most tokens.
Step 3: Evaluate the Team
- Are team members identifiable?: real names, LinkedIn profiles, past projects. Anonymous teams aren't automatically bad (Bitcoin's creator is anonymous), but they're much higher risk for new projects.
- Do they have a track record?: have they built anything before? Check GitHub for actual code contribution history.
- Are they reachable?: can you find them on professional networks? Do they engage in technical discussions, or only in hype?
Step 4: Read the Tokenomics
Tokenomics is how the token supply is distributed and managed:
- What's the total supply?: a token with 1 trillion supply and a $0.000001 price is not "cheap", it may already have a large market cap.
- How much does the team hold?: if insiders hold 50%+ of supply, a single sell-off can crash the price.
- Are there vesting schedules?: team and investor tokens should unlock gradually, not all at once.
- Is there a tax on buys/sells?: some tokens take 10–20% per transaction. High sell taxes are a red flag (they make it hard to exit).
Step 5: Check Community and Activity
- GitHub activity: is there actual development happening? Regular commits from multiple contributors is a good sign. An empty or stale GitHub is not.
- Community quality: are people discussing the technology and product, or just posting price targets and rocket emojis?
- Holder distribution: check Etherscan's "Holders" tab. If the top 10 wallets hold 80% of supply, the token is extremely concentrated.
Quick Red Flag Summary
Any single red flag is a warning. Three or more? Walk away. No token is worth the risk.
- ❌ Anonymous team with no prior work
- ❌ Unverified smart contract
- ❌ Unlocked or tiny liquidity
- ❌ "Guaranteed" returns promised
- ❌ High sell tax (makes it hard to exit)
- ❌ No GitHub or development activity
- ❌ Only hype, no product
- ❌ Pressure to "buy now before it moons"
Want to stick with established, lower-risk options? See our guide to beginner-friendly coins. And for broader safety practices, read how to avoid crypto scams.