Safety

Is This Token Legit? A Due-Diligence Checklist

A 5-step checklist to evaluate any cryptocurrency token before buying — covering contract verification, liquidity analysis, team evaluation, tokenomics, and community signals.

7 min read
#due-diligence#tokens#scams#research

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.

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This guide focuses on evaluating newer or lesser-known tokens. Established cryptocurrencies like Bitcoin and Ethereum have years of track record — if you're just starting, our beginner coins guide covers safer starting points.

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.

Liquidity red flags vs green flags
🟢 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?
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AI-generated profile photos are everywhere. Reverse image search any team photos. If they're all perfectly symmetrical faces with blurred backgrounds, they're likely fake.

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.

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