November 3, 2022

The 9 Crypto Red Flags

Ben Beddow

Ben Beddow

Co-Founder

Crypto is the wild west and people are drawn to it, be it in a bull or bear market, because of the large gains they have seen or heard others achieve over short periods of time. But hidden amongst the legitimate projects vying to climb to the top of their particular industry are many similar looking projects whose eyes are only aimed at the back door, where they’ll make a quick exit into obscurity with your hard earned money.

Whilst these scam projects may look incredibly similar to their legitimate counterparts there are, in fact, some telling signs that we can use to to spot a scammer in crypto. These are called crypto red flags and below we run through each of the red flags a crypto project can raise.

Each of these red flags can be caused by one of many reasons, listed below, and scam projects will, typically, tick multiple reasons in the list for a red flag. The more red flags a project raises, the more you should be wary of it.

Crypto Red Flags


Team

The Team Red Flag can be raised by:

  • Anonymous team
  • Pseudo-anonymous or seemingly fake social media accounts being the only “proof” of a team's existence or legitimacy
  • Team members’ social media accounts that are much older than the size of their following or level of activity shows
  • The use of just a single image of individual team members across multiple social channels, websites, and even in announcements

Roadmap

The Roadmap Red Flag can be raised by:

  • Non-existent roadmap (where the project’s future is based purely on the uptake of the token and the growth of the community)
  • Too promising a roadmap, offering grand achievements in a short amount of time
  • Too sparse a roadmap with not enough details or milestones
  • Not updating the roadmap when deadlines are hit or, more importantly, missed

Content and Documentation

The Content and Documentation Red Flag can be raised by:

  • Lack of a whitepaper or any in-depth documentation
  • Not showing that they have the knowledge of how to create the solution to the problem they have stated
  • Grammatical, spelling, and punctuation errors that are consistent with a lack of review and lack of care for the final product
  • Consistent use of buzzwords, including: investment related terminology, trending social or political topics, trending topics or utility in the crypto space, and “moon boy” talk
  • False claims of the level of uniqueness or pioneering nature of the project
  • Repeated mentioning of the level of success that will be achieved
  • Plagiarized content, be it their website layout, images or content, or the content of blog pieces, their white paper, or documentation

Social Media

The Social Media Red Flag can be raised by:

  • High channel following with a comparatively low level of interaction with their posts
  • Short time of existence but unreasonably high following
  • Social Media accounts that are much older than expected for the age of the established project
  • Lots of bot posts i.e. notably similar posts (typically pumping the community/price) in Telegram, on Twitter posts, or in Discord

Community

The Community Red Flag can be raised by:

  • Team members never being available for the community to talk to directly
  • Community Managers running Telegram and Discord channels, thereby acting as a 3rd party buffer for community questions directed at the team
  • Banning or blocking people who ask questions or raise legitimate concerns
  • Dismissing any concerns about the project as FUD rather than by providing answers and/or refuting these concerns

News & Media

The News Media Red Flag can be raised by:

  • Media sources quoted or listed on the website are sponsored posts or press releases
  • Articles and content about the project from media and news platforms are mainly focused on providing information about token sales or speculation on token price
  • The project using their presence on ecosystem lists - e.g. Essential Cardano, the Cardano Cube, Built on Cardano - to legitimize themselves
  • The only interviews with the team being text-based AMAs, especially if they’re done with investment focused groups or profiles
  • Not linking the logos for news & media mentions to the content

Partners

The Partners Red Flag can be raised by:

  • Stated partnerships that can be proven to be false by contacting the partner in question
  • Mentioning or listing 'Cardano' as a “Partner”
  • Listing of multiple Cardano wallets as “Partners”
  • Investment, Capital, or Venture firm partners with no online presence or a shady online presence
  • The partners’ logos on the website do not link out to said partner

Development

The Development Red Flag can be raised by:

  • Not having any confirmable developers on the team
  • Outsourced development of the protocol
  • Not having an MVP at the launch of their fund-raising token/NFT sale or ISPO
  • No development updates
  • Inconsistent and/or not evidenced development updates
  • Consistently missing deadlines
  • Release of a token staking program, and promoting it as a big thing
  • Releasing a bug ridden token staking program who’s fixing then absorbs all the dev’s time

Tokenomics

The Tokenomics Red Flag can be raised by:

  • Short or no vesting periods for the team and/or advisors and early investors
  • A large amount of tokens being allotted to the team (and if applicable advisors)
  • A large amount of tokens being allotted to early investors or private seed rounds at a highly discounted price
  • Scheduled token burning or other activity designed to pump or support the token price
  • First launching on chains other than Cardano
  • Incorrect math on tokenomics pages and in graphs displaying token distribution

How Many Red Flags is Too Many?

The contents of this page is not investment advice and even legitimate projects may raise a red flag or two. There is no magic number as to how many of these red flags constitute the likelihood of a project being malicious, but a good rule of thumb is that the more red flags a project raises the greater the likelihood that it is a scam.

This list of crypto red flags is designed to show you where potential scam projects will often be lacking, and to allow you to better inform yourself the next time you review a crypto project.

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