DYOR – Do Your Own Research [CRYPTO Version]

Introduction

DYOR stands for Do Your Own Research. It’s a very common phrase in crypto and a very sensible one. But, while most projects, sites, advisors, experts etc. use the DYOR abbreviation, not many crypto buyers or investors actually conduct their own research. They mostly follow a hype by ‘aping in’, hoping that they don’t miss the ‘next moonshot’.

With a lot of hypes out there and stories of people that became awfully rich by being one of the early investors in a crypto project, people are massively attracted to ‘go into crypto’. While it seems very attractive, and some folks really make a lot of money, there are even more people in the crypto space that lose money. Mainly because they just follow the herd into a hyped project without even knowing what they really do. With this article, we will give you some tips for DYOR when you’re about to invest (ape) in crypto projects. Especially the new ones in an early stage, or so-called altcoins or meme coins.

Useful Tools To Detect Crypto Scams

Of course, time and timing are crucial in crypto, so if you don’t have the time to read the entire article to actually learn how to detect crypto scams, you can use these tools:

Please note that these tools only give you a partial overview of the possible risks. You should always try to put things in context. For example, renounced ownership of a contract (the deployer can’t change the contract anymore) was one of the first things to check a while back. But, with the ever-changing market, it sometimes is better to have control over the contract to evolve the project. Once renounced, there is no way back. So still a risk, but in the right perspective, it could be beneficial for the future of the project.

Next to locking liquidity, locking the contract or empowering the community with control over the contract seems to be a good choice in between.

Crypto fact & Figures

Let’s face it: the crypto market is HUGE. At the time of writing this article, the total market cap of crypto is roughly 2.5 TRILLION dollars. Yes, TRILLION! With Bitcoin being the dominant project with over 43% of the total market, with a price of $60,000. And this is just the market cap of all +14,000 crypto projects that are listed on CoinMarketCap at the time of writing.

Now, new crypto projects are launched every minute on several blockchains like Etherium, Solana, Cardano, Avalance, Polygon, Binance Smart Chain, etc. These new projects, or tokens, use the technology of these blockchains, leveraging this technology with so-called Smart Contracts. With these Smart Contracts, you can create new crypto coins. The most well-known coins are altcoins or meme coins like Dogecoin and Shiba Inu. This kind of project started out as a joke, based on memes, but got a huge amount of traction, pushing both projects among the top 10 of biggest crypto projects based on market cap.

And, as with most success stories, it draws a lot of attention, growing them even bigger. This resulted in a market where 1000s and 1000s of new coins are created EVERY SINGLE DAY. Hoping to become the next Shiba Inu with staggering returns. But where money is, scammers are too. Their goal is to get as many investors as possible into their project, take it all (or most of it) and leave you empty-handed.

So before you ape in, take a good look at the project by conducting some basic research. Here are some tips to give you a quick overall idea of the project you want to throw some money at.

How To Detect Crypto Scams

Below we list some critical points while DYOR:

No locked liquidity or only for a short period 🚩

One of the most important things is to check if the liquidity of the project is locked for a fair amount of time. Locking the liquidity means that the liquidity providers can’t pull out all the money at once by removing their LP tokens.

To give the project a real chance AND trust, the dev’s should lock their liquidity for at least one year. Preferably even longer. If the liquidity is not locked, or just locked for a few days, weeks or months, walk away from the project.

Low liquidity 🚩

Low liquidity means that the project is very well funded from the start. It also means that the price will be much more volatile since a buy or a sell has much more effect on the price. A solid project should have at least 10% liquidity, but the more, the better.

No owners/creators background or identity 🚩

Most scammers don’t even bother to convince you about the project by revealing their backgrounds or identity. One of the big downsides of crypto is that people can work anonymously. Obviously, if their intentions are not good, they won’t provide any information on their identity. Check if the devs are ‘doxxed’, meaning that they’ve revealed who they really are and what their background and track record is.

Lately, projects tell that their owners are by a third party. They claim that some ‘auditor’ has the real identity of the owners in a safe place in case things go wrong. Don’t fall for that. If you never see a face, video, name or some voices during an AMA, you’ve got yourself another red flag.

I’ve even seen projects out there with hired actors, pretending that they were the ‘devs’. Yes, creativity goes a long way in crypto!

Unnatural holders and token distribution 🚩

If the holders (especially the top 100) hold large and rounded amounts of tokens, this could point out that the tokens have been distributed to hide the fact that the team controls all tokens. Also, check how many tokens the top 100 holders hold in relation to the total amount of tokens available.

A lot of dev wallet activity before launch 🚩

If the dev wallet seems to be very active before the launch of the project, this could be a red flag. For example, there are lots of tokens transferred to other addresses. Don’t fall for the trap of ‘this was a private presale’. It usually means that they would make it look like there are already a lot of holders and hide the fact that these wallets are controlled by the team.

Holders with a huge amount of coins (and unlocked) 🚩

Big, unlocked wallets are always a big red flag. Ask the team about this. Sometimes it’s used for the dev team or marketing. Just make sure what the idea behind it is or even ask them to lock it for extra security.

Huge following on social media, low engagement 🚩

To pretend that there is a lot of interest in certain projects, scammers create social media accounts and buy fake followers to make them look big. For instance: they have 10k members in their Telegram group and there are only a few people online. This indicates bot users. Same for social profiles on Twitter or Instagram: if you see a huge fanbase but only a few likes, replies or reposts, they have probably bought fake followers.

Extreme price fluctuations 🚩

While price fluctuations are something you should try to live with when you’re into crypto, huge price increases or decreases point out that the price can be easily manipulated. For example, you see big green or even worse, red bars on the chart caused by some large transactions, the price can be controlled by whales (or the team itself…!).

No listings on big crypto sites like CMC and CG 🚩

Big crypto websites like CoinMarketCap (CMC) and CoinGecko (CG) keep a good overview of available projects. Before you get a listing there, they have an extensive application to keep scammers out.

While some investors want to get in really early, chances are that there is no listing yet. For some people, the listing on these sites is an indicator of a good project. But remember: a listing here is not a guarantee that the project is 100% legit.

No audits by external parties 🚩

Audits by external parties are very popular to get the trust of investors. Don’t get in blindfolded by only knowing that the project is audited. Also, check the audit to find out more about the findings of the auditor. Auditors check on several points and point out possible issues, errors or vulnerabilities. But, it’s not said that the team behind the project actually did something to overcome these. So be careful when they constantly tell you that the project has been audited.

No real use case 🚩

This is more of an orange flag than a red flag since Doge and Shiba also didn’t have a real use case rather than being a hyped meme coin. Chances that other projects will follow big projects like this are zero to none. So if there is no real use case or a super simple roadmap anyone could makeup, double-check your decision before aping in. The useless coins may look very attractive for short term gains, in the medium/long term they are probably worth nothing.

Common sense

An old rule also applies to crypto: ‘if it’s too good to be true, it probably isn’t’. So use your common sense here and ask yourself the following questions:

  • What is the overall impression of the project?
  • Does the website has spelling errors?
  • How old are their social media profiles?
  • Is there a lot of interaction in their group?
  • Are the rewards extremely high?
  • Are they promising the sky?
  • Are your questions not answered in their group?
  • Do they accuse you of FUD in their group?
  • Did you get banned from their group for no clear reason?

When in doubt of one or more of the above questions: walk away and go to the next project.

General tip:

Never, ever transfer any of your cryptos directly to another wallet!! Unless it’s from a friend that you can verify, you should never do this.

Sorts of Scams

Below you can find the most common sorts of scams in crypto:

Rug pull

The rug pull is the most used scam in crypto. In a rug pull, the devs or contract owner suddenly takes out all the money by removing the liquidity. Leaving the investors behind with a worthless token since it’s suddenly untradable. This is also why locked liquidity is essential. 

Honey Pot

A Honey Pot is a coin you can buy but can’t sell. On the chart, you only see green bars and buy transactions without any red bar or sell transaction.

Pump and dump

In pump and dump projects they try to hype up the buy orders by aggressive and timed marketing actions. Once executed, the price goes up strong, but at a certain point, the whales (or team) are dumping theirs, creating a massive drop in price. In pump and dump projects everything might seem ok, so be aware of extreme price fluctuations even if you passed all red flags.

Ponzi Scheme

Projects with great returns (by any means) that promise ‘passive income’ or ‘free tokens while holding’. What actually happens is that new investors pay out the first investors in order to keep them engaged. As long as new investors flow in, there is no problem. But, the bigger these projects get, the harder it is to pay everyone and the project collapses.

Fake presale

Before the project launches, the team bind it is trying to get a huge follower base to hype them for the presale. Once they have the feeling that people really are willing to invest, they ask you to send BNB, BTC or BNB to a specific wallet address and paste your TX or wallet back to them so they can transfer the presale tokens. Never, ever send crypto to any unknown wallet directly.

In case of a presale: always make sure they use a legit platform like DXSale or Pinksale to execute the presale.

Well, now you have some more background information to prevent yourself from losing money in crypto scams.