As interest in cryptocurrencies continues to grow, so does the number of scams. According to analysts at CoinGecko, 98% of new investors are unable to identify fraudulent tokens, putting their funds at risk. With countless new projects launching every day, it’s more important than ever to learn how to spot red flags. Here’s what CoinGecko recommends.
1. Analyze Token Distribution
One of the first warning signs is a highly concentrated token distribution. If more than 50% of the total supply is held by the top 10 wallets, it may indicate potential price manipulation or a looming rug pull.
❗ The only exception is when those wallets belong to centralized exchanges, DEXs, or liquidity locking contracts.
2. Monitor the Number of Holders
A declining number of token holders is another red flag. A healthy project typically shows steady or growing community interest. When users start to exit en masse, it often reflects waning confidence.
3. Watch for Common Scam Signs
CoinGecko highlights three common indicators of scam tokens:
- Honeypots — tokens you can buy but cannot sell.
- Hidden fees — unexpected charges on buying or selling that significantly reduce or eliminate your profit.
- Dubious developers — teams with a history of involvement in scams, rug pulls, or pump-and-dump schemes.
4. Evaluate Liquidity
Liquidity is a critical metric. If a project’s liquidity pool is not locked, the developers can withdraw funds at any time, leaving investors empty-handed.
🔐 Locked liquidity for a fixed period increases trust and reduces rug pull risk.
5. Check the Token’s Age
Newer tokens come with higher risk. The majority of scam tokens are launched recently, often within days or weeks of their collapse. Be cautious with newly released assets.
6. Use Tools — But Don’t Skip Your Own Research
CoinGecko recommends using their GT Score, a quick evaluation tool that ranks tokens based on several factors. However, they emphasize the importance of doing your own research (DYOR).
Final Thoughts
The crypto market is full of opportunity — but also of danger. Scam tokens appear almost daily. In fact, CoinGecko reported that 50% of all crypto assets launched in Q1 2025 have already failed.
To avoid becoming a victim, investors must stay vigilant, analyze thoroughly, and never skip due diligence.
Stay smart. Stay safe. And never invest in a project you don’t fully understand.
