Anytime a new project comes out, it can sometimes be tough for the average investor not to follow into the hype and “FOMO” in. However with the sheer number of new projects coming out nearly every single day on Binance Smart Chain, some will not only fail, but can do so in bad faith.
As such, it’s recommended to study the facts, look over the tokenomics, and always do some research and due diligence before getting into any type of investment.
There are 3 main types of catastrophic failures for a project. One of which is done with malicious intent whether by a member of the team itself or a third party, “bugs” and “exploits”. For example, backdoors in the code itself which can then be hacked in order to mint an unlimited amount of coins. Many projects are in fact clones and/or unaudited and forked code can sometimes be exploited, as those may have been rushed into production without enough time for a proper development phase.
The whole cryptocurrency market is an especially fast paced environment and these are unfortunately real occurrences.
However by following a few recommendations one can avoid most obvious pitfalls, and can continue investing freely on this amazing ecosystem that is BSC with genuine and promising projects. As such, here is a non-exhaustive list of tips, or best practices which might be of use to investors looking to get into the space with a little more confidence in their future investment.
- Starting with the obvious, a website that is looking strange, fake, copy pasted, without a SSL certificate, is not inspiring confidence overall, and full of typos is probably one of the first red flags. As we all know, most phishing attempts are riddled with misspellings and hastily done, and this is usually no exception.
- No social media presence. Usually a Twitter account should be active or at least put in place. There should be a way to contact or message someone at the project.
Little to no activity on Telegram, along with no responses to your questions. If there is a social media presence, having no answers to any legitimate questions you might have or automatic bans is usually a telltale sign that something is not quite right.
- A “Whitepaper” is a must and can give out a lot more information on the future of the project itself and its tokenomics.
- Media or FAQ pages do show that the team understand that there might be a learning curve in using the app or willing to inform investors and is usually a good sign.
- A roadmap, or a general purpose regarding the project is also a must both in terms of tokenomics and to give newcomers some information regarding new releases. However this can be faked as well, so it’s always better to use caution.
- No listings. Most projects are not listed right away on platforms like CoinGecko or CoinMarketCap, and while this is not usually an issue, it is recommended to new investors to look for projects that are listed when they are new to investing.
- Extremely high or unrealistic APY on DeFi projects do sometimes turn out to be fabricated and it’s important to remain vigilant and if possible try with a smaller amount to see if numbers do check out. If it looks too good to be true, remember that sometimes it is.
- Audited projects by reputable third parties usually will be less susceptible to “exit scams” and reviewing the audit itself gives the investor a glimpse into potential issues or bugs beforehand.
- Airdrop or presale. If the Airdrop becomes a presale midway or the details do seem sketchy, they probably are and one should then be even more cautious if things don’t pan out or change on the fly during the genesis of the project.
- Code review. If you have the ability, do review the code itself. Most projects will be open source and let you do that, and access to the GitHub repository can also show how much development activity is actually taking place.
- Review the transactions and wallets being used by using a blockchain explorer like BSCScan. It usually gives a lot of information on the current health of the token.
- Use only the smart contracts from a reputable source. CoinGecko and CoinMarketCap do provide contracts of each projects which you can then copy paste into PancakeSwap for example. It is recommended not to use contracts you may be given in a Telegram chat by non-admin for example. It is recommended use only the projects main website or Twitter account to avoid scammers.
- Is the liquidity locked? If the liquidity is not locked using services like ExLocker, for example, the team can theoretically take the liquidity out, if the smart contract allows for it. It is not a requirement, but something to keep in mind.
- Vested team tokens. In most cases, a certain amount of tokens are reserved for the team, for a development fund or even partners. Locking them up via a smart contract which will only release them gradually over a period of time, means that they will not be sold by the team immediately after the project launches. Indeed, if the team sells all of their tokens, this results in the price dumping, panic from the investors, and usually signals the death of the token itself.
- Finally, what team is putting the new project out? Taking a look at the team whether anonymous or not can usually help potential investors when determining whether a project is legit or a potential rug pull. Looking at what the team has done in the past, and which projects have they been aligned with previously, are considered best practices to follow.
No matter what happens, it’s important to remember that for any investment, you should Do Your Own Research beforehand in order to be SAFU and have the best experience possible within the whole ever growing Binance Smart Chain ecosystem.