How to Tell If That New BSC Token Might Be a Scam…Or If It’s Worth Investing In
There have been a lot of new and interesting projects gaining ground quickly on the Binance Smart Chain, but as with any popular shiny new thing, bad actors are always there to jump in and try to take their piece unethically.
So, how can you spot a scam? How do you know if a coin is worth investing in? With this guide, you’ll be able to identify the projects at risk of taking all of your money and hopefully staying far, far away from them. As a bonus, some of this list also serves you to determine that, even if the project isn’t a scam, is it a good investment to begin with? Do note that ticking one or two boxes doesn’t automatically discount the project as a whole, but if there’s a lot of red flags, then you should be on high alert.
Get a piece of paper to make tally marks on and let’s get started!
Step 1) Check their website
Give the project a point for each of these you can answer yes to:
- Does the website look professional? Use your best judgement here. You don’t have to critique it on every little detail, but it should appear that the creators care enough to have taken time to either code it, or spent money on a decent template.
- Are there clearly defined tokenomics? Take notes at this question while you’re here, you’ll need them for later questions. Specifically, note if the project says that they a) burn tokens, b) have a locked liquidity pool, and c) reflect tokens back to holders. This normally comes in the language “10% tax on every transaction, with 5% sent to liquidity and 5% returned to holders”.
- Is there a clear roadmap?
- Does the roadmap mention marketing? It’s crucial for a project to have a good marketing plan in order for the coin to remain viable because new investors must be reached and brought into the holder count. Look for language like “marketing plan, influencer marketing, and partnerships”.
- Can you find their token contract address on their website easily? If not, is there at least a “Buy Now” button that sends you to PancakeSwap? Copy the address into a document at this step to save for later, or click the buy now button, land on PancakeSwap and wait for a pop up box that has a link to “View on BscScan” and click on it. Either way, save the contract address for later.
Step 2) Check BSCScan.com
Again, give the project a point on your tally sheet for each of these you can answer yes to:
You can either use the BSCScan window you may have opened in the last step, or just browse to BSCScan and paste the contract address into the search bar at the top. Don’t try to cut corners and search for the token name here, as a lot of scam tokens love to create contracts with the exact same name as another more popular project, so you may land on the wrong contract address doing it this way.
Give the project a point for each of these you can answer yes to:
- I’m so sorry, but you gotta do some math first. Find the number of holders at the top of the BSCScan page for the token. Now we need to find the age of the project. You can do this two ways. First way is to see if the pagination at the top of the “Transfers” tab (red arrow below) is less than 4000. If so, you can click the nearby “Last” button, scroll to the bottom, and see the date of the first transaction.
If the transaction pagination is 4000, then you need to go to the Analytics tab instead:
Make sure that “All” is selected in the range, and then hover your mouse over the very left side of the chart. You’ll get a pop up on hover that will tell you the date of the project’s inception. With this, you should plug the date into this tool in the box on the left, and hit “Today” in the box on the right then click Calculate.
Now, divide the number of holders by the number of days since the project’s inception. This number gives you the average number of holders per day, and is a very good gauge on whether investors are excited about this token or not.
We need investor excitement, because this can tell us that maybe someone else has figured this coin for a scam, or just a bad investment. Compare your number with some of the other popular projects to determine if they’re on track for the more popular projects.
You may need to pick a few coins and do this math yourself, depending on when you’re actually looking at this article, but here’s some examples to give you a ballpark. At the time of writing, these were all true:
SafeMars has an average holder per day of 7,328 (432,361 holders/59 days)
Elongate has an average holder per day of 9,044 (425,106 holders/47 days)
BONFIRE has an average holder per day of 11,220 (258,079 holders/23 days)
GAMER has an average holder per day of 12,521 (12,521holders/10 days)
So now, answer this: does the coin you’re investigating look like it’s on par with other popular projects as far as average holders per day?
2. If the token mentioned that they burn coins to a “black hole” address, is this address in the top 3 holders on the list on the “Holders” tab? (Burn wallets will typically have an address that looks like “0x0000000000000000000000000000000000000001” or “0x000000000000000000000000000000000000dead”). If the token is not a “burn” token, then skip this question.
3. Is the liquidity wallet also in one of the top 3 positions? Not all projects have a burn wallet, but they damn well better have a liquidity wallet. To identify the liquidity wallet, look for a wallet address that has a contract icon on it. They are also most often named “PANCAKESWAP :<NAME_OF_TOKEN>”.
Note 1: You may see other wallets here that also have a contract icon on them. These could be dev wallets or partner wallets, used to pay for development/marketing and supporting partners, respectively. Check the project’s website to see if these are mentioned. As long as the project is upfront about what these are, they are rarely a cause for concern.
Note 2: If the burn wallet and the liquidity wallet are not in the top 3, this may be because the project is not very mature, and not necessarily immediately indicative of a “scam”. In this case, they should at least be in the top 5. Use the knowledge of how many days old the project is, and use your best judgement on awarding points here.
3. Are the whales being managed appropriately? To determine this, first look and see if there’s any non-contract wallets between the burn wallet and the liquidity wallet in ranking (or, in the case of no-burn-wallet tokens, if there are non-contract addresses above the liquidity wallet). Once again, this configuration could be due to a lack of project maturity, so if these wallets:
- all have around 1–2% of the total supply and the liquidity wallet is in that same 1–2% area,
- AND the burn wallet (if it’s there) is also at around 1–2%,
- AND the project is new,
…this is likely the case and doesn’t immediately indicate “rugpull” or “scam” potential. However, if there are wallets that are not denoted as contracts AND they have 5%, 8%, 20% or more of the total supply, at this point I usually recommend abandoning the consideration of this coin.
Bonus: If you want to dig deeper, you can usually tell these are whale wallets if you click on the wallet address, then click on the wallet address again in the “FILTERED BY TOKEN HOLDER” area.
Expand the view on the dropdown at the top of the resulting page (it typically has a dollar amount in it), and if you see several tokens, it’s definitely a whale wallet belonging to someone.
So now that you’ve looked at the whales, I’ll bring you back to the question at hand: are there NO whales that have the power to bail out of the project and tank the price?
Now tally up your responses and compare:
1–3 points — DANGER ZONE. This project is either a scam or too new to make a decent determination. If you still want to maintain an interest in it, put it on a watchlist and monitor them, running them through the above again in a week or so.
4–7 points — PROCEED WITH CAUTION. This token might not be an outright scam, but it isn’t filling us with confidence that it’s a good investment. You may want to only put a little money into this project, or continue monitoring them from a watchlist.
8 — 9 points — PROBABLY OKAY. No one thing on this checklist should outright disqualify a coin for consideration, nor should it scream “BUY”, but if you aren’t finding a whole lot of red flags you’ve wound up in this bracket. Just remember to only put in money that you would not care to lose, as investing in these new coins is ALWAYS a gamble. But, hopefully, you’ll manage to make better gambles on these coins if you only dedicate to buying coins that fit into this bracket.
Concluding, this is not an exhaustive list of things that could be wrong with any given project, and this is by no means any sort of financial advice. Always invest with caution.
If there’s any coins that you’d like us to look into, or help through this guide, be sure to join us Monday through Friday at Crypto House. We currently stream concurrently on the following services:
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