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David Veksler

How To Tell If A Cryptocurrency Or DeFi Platform Is A Scam

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(If you’re a victim of a crypto scam, read this first.)

My survey of 2500+ crypto scam victims identified some key signs that a crypto project is a scam. Whether it’s a scam from the start, or just doomed to fail and waste all your money, here are six ways to tell if a crypto project is a scam:

1: Does this project have a legitimate profit model?

There are a few legitimate ways to make a profit in crypto, such as mining, lending, staking, and yield farming. Learn what each means to so can evaluate if an opportunity is legitimate. Never invest money in projects whose business model is not disclosed or that you do not understand.

Legitimate CeFi platforms clearly state what they do with customer funds, list their fee schedule, and expected returns. DeFi platforms should list token allocation, a link to the whitepaper, and smart contract source code. Never invest in Defi projects without a whitepaper or documentation stating the tokenomics.

2: Is this project feasible and sustainable?

Even if a project is legitimate, it needs to have a business model that is scalable and sustainable. For example, many projects aim to create coins for very narrow niches, like a token to pay your dentist. Such a project will never achieve a very large market cap. It’s also not sustainable because the token doesn’t add any value to its target market, and so it will never pay off for investors.

3: Does this project have independent verification or third-party certification?

Be extremely careful about platforms that offer to trade your money. There are only a few legitimate ways for businesses to trade customers’ money. In the US, they must be either a hedge fund or registered brokerage. They will be licensed with a regulatory body such as FINRA & SIPC or the SEC (via FORM D filings). Be aware that scammers are impersonating licensed financial professionals, so it is necessary to independently verify their contact information via FINRA BrokerCheck, LinkedIn, etc.

Note that hedge funds are not even legally allowed to directly advertise their services, so if someone is messaging you via Instagram and asking for deposits in anonymous crypto payments, it is 100% a scam.

In DeFi, services like RugDoc rate the legitimacy of financial platforms. RugDoc will tell you if a project has passed independent security audits like Certik. Never invest in a DeFi project without a security audit, or if rated as high risk by RugDoc.

4:  Can you independently verify this token or platform?

A common scam in crypto is to impersonate a legitimate platform or token. To avoid this scam:

1: Always access crypto services through their official website and never trust “support” links found through search engines or social media.  Scammers are placing search ads that fool you into thinking their fake website is a legitimate platform.

2: Be very careful of social media recommendations. Always check independent sources like RugDoc (for DEFI) or FINRA (for CeFi)

3: If buying a token, confirm the contract ID matches at CoinMarketCap.

5: Is this project run by a reputable team?

Many DeFi projects are anonymous, but CeFi projects should always disclose their management team. Always check that the bio on the project page matches what you can find on LinkedIn and Twitter.

Launching a cryptocurrency exchange is an incredibly technical endeavor. Does the management team have the required technical experience or are they just paid celebrities? Do not simply look at the number of Twitter followers they have, as that is easy to buy.

Conclusion: Signs of a crypto scam: 

According to my survey of 2500+ scam victims, fraudulent schemes have a few things in common: unrealistic returns, high-pressure tactics, sales pitches via messaging platforms, no mention of fees, & lack of reputation.

Scammers have deployed thousands of bots on social media platforms like Instagram, Facebook, LinkedIn, Telegram, and Twitter to push their platforms or pump up their tokens. Never trust social media recommendations, even from a friend, as scammers are hacking profiles to push their scams. Check to see if a project has a legitimate community on Reddit or Discord.

If in doubt, keep in mind that the safest strategy is always to buy and hold Bitcoin on your own hardware wallet.

Originally posted at The Bitcoin Consultancy.

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