Most crypto and blockchain enthusiasts know that it is essential to do your own research (DYOR) before investing in a crypto project. Nevertheless, it is challenging to do so systematically. First, because there are thousands of projects and it would take a lifetime to research every single one of them, and second, because no matter how well-prepared you are, fine-tuned marketing tactics can lure even the most seasoned-investors into neglecting the tedious research.
In order to protect yourself from falling for the wrong crypto project, we have developed this simple safety check-list, which should help quickly screen out of your watch-list any projects exhibiting one of these 5 red flags:
#1. Marketing Traps - If a project uses any of the following lures to catch your attention and your money, you should immediately cross them off your list: 100,000% APY, super auto-compounding rebasing mechanisms, multi-level marketing rewards, reflection taxes, transaction taxes, advertising banners, influencers, fake news articles or false success stories. Crypto scammers are masters in FOMO (Fear of Missing Out) tactics or messages, such as “Do not miss”, “unique opportunity”, “starts in 3 days”, etc. All of these tricks are indicative of ponzis, pyramids, rugs, slow rugs, pump and dumps and/or fake hacks - real startup projects will never use any of these marketing terms.
#2. Unverified Dev Team - If a project team asks you to invest your hard-earned money in them, but they find various excuses to not be fully transparent, accountable and liable, you have absolutely no reason to trust them, no matter how attractive the project. Note that when it comes to crypto, a basic KYC is unfortunately not sufficient, because it is merely a simple ID check that can be easily defrauded using actors and/or falsified documents. Honest teams will not shy away from appropriate due diligence processes, which include a full background check and verification of the history of every key team member, and this is why it is an integral part of the CertiK KYC Badge. You can verify if a team has obtained our KYC Badge on our Security Leaderboard.
#3. Absence of product - If you can not easily understand what the product is, this likely means it is inexistent or fake, and you should run in the opposite direction. A common tactic scammers use is to either convince you that the product is too sophisticated and complex for you to understand, or that it is still at the idea stage, or that there is no product or utility yet but the team will build many utilities later on based on the desires of the community. These are all mere excuses to collect your cash, but the real likelihood is that there is no product, and there never will be. Keep in mind that if investing in a new product has a high risk of failure, the risk of investing in a non-existent product will be exponentially higher.
#4. Coding Issues - To reduce the risk of blockchain projects technical failures and cyber-attacks, legit developers routinely audit their smart contracts. You should always check the result of these audits on our Security Leaderboard, and be wary of any major issues, or if the project is not listed. If a project does not have enough budget to audit or re-audit their code, it not only puts the project at a higher cyber risk, but it also means that the project is not solid enough or convincing enough to raise seed funds and invest in the fundamentals. And if a team is not seasoned enough to convince professional investors, why should you trust them to use your personal money to carry out the next steps of their project?
#5. Geographical Havens - If the key developers are located in another country, or in a country that has a less-developed regulatory, law enforcement, and/or judicial system, they can easily leverage this geographic distance to render difficult or near-impossible any future litigation/prosecution. Developers who have fraudulent intentions are well-aware of this and they will use it to their advantage to steal your funds without the legal risk. The CertiK KYC process includes a full verification and risk analysis of the geographical locations of each key team member, so you can mitigate this risk by ignoring projects teams without a KYC Badge on our Security Leaderboard.
Detecting just one of these red flags should be a warning for you to immediately dismiss a potential investment. Don't forget - if you have the slightest doubt, consider it a red flag. It is unfortunately today too easy to be lured into a trap, to trust an unverified team because of the high returns they promise, to invest in a fake product, to deposit funds in a flawed smart contract, or to confide your hard-earned money to someone who is out of your judicial reach. CertiK’s security audits and KYC due diligence are carried out by experienced security engineers and law enforcement professionals, and the results of our verifications are publicly available on the CertiK Security Leaderboard, so that you can easily compare security scores and badges, and confidently build your own personal CertiK crypto watch-list.