95%+ of crypto projects will fail or are outright scams.That's not pessimism - it's math. Recognizing red flags isn't about being negative; it's about protecting capital through proper due diligence for opportunities that actually matter.This guide covers every category of red flags: team, tokenomics, marketing, technical, and behavioral. Use it as a checklist before any token investment. For the tokenomics-specific deep dive, see our red flags and green lights guide.
Step 1: Team Red FlagsThe team is your first line of defense - and often the easiest red flags to spot.Anonymous or Hidden TeamRed flag: No named team members or all pseudonyms.Why it matters: Anonymous teams can disappear with funds. Real teams have reputations to protect.Exceptions: Some legitimate projects (Bitcoin, early DeFi) have anonymous founders, but they've proven themselves over years.Fake or Unverifiable BackgroundsRed flag: LinkedIn profiles that don't check out, claims of working at companies that can't be verified.How to check: Google the names, check LinkedIn employment history, look for conference talks or papers.No Relevant ExperienceRed flag: Team has no blockchain, tech, or relevant industry experience.Why it matters: Building successful crypto projects requires specific expertise.Previous Rug PullsRed flag: Team members connected to previous failed or scam projects.How to check: Search team names + "rug" or "scam" or previous project names.
Step 2: Tokenomics Red FlagsBad tokenomics kill projects even when everything else is good.Massive Team AllocationRed flag: Team owns >30% of tokens.Why it matters: Concentrated ownership creates dump risk and centralization.Short or No VestingRed flag: Team/investor tokens unlock in Why it matters: Short vesting = insiders dump immediately.Hidden AllocationsRed flag: Tokenomics don't add up to 100%, or vague categories like "ecosystem" contain huge allocations.Why it matters: Hidden allocations are often insider wallets.Unlimited or High InflationRed flag: Token supply can increase infinitely, or inflation >20%/year.Why it matters: Your tokens dilute over time if you're not earning proportional emissions.No Clear UtilityRed flag: "Governance" is only utility, or utility is vague/speculative.Why it matters: No utility = no sustainable demand = eventual crash.
Step 3: Marketing Red FlagsScams often market harder than they build.Guaranteed ReturnsRed flag: Promises of specific returns ("100x guaranteed," "APY: 10000%").Why it matters: No legitimate project can guarantee returns. This is illegal and unrealistic.Celebrity EndorsementsRed flag: Paid celebrity promotions, especially from non-crypto celebrities.Why it matters: Celebrities are paid to promote, not because they evaluated the project.Urgency and Scarcity PressureRed flag: "Only 24 hours left!" "Limited spots!" "Miss this and you'll regret forever!"Why it matters: Good opportunities don't require high-pressure tactics.Fake Community ActivityRed flag: Telegram/Discord full of "To the moon!" bots, or massive follower counts with low engagement.How to check: Look at post engagement ratios, check follower quality.Copied MarketingRed flag: Website/whitepaper copied from other projects.How to check: Search unique phrases from whitepaper, compare to similar projects.
Step 4: Technical Red FlagsTechnical issues often signal deeper problems or outright scams.No Audit or Failed AuditRed flag: Smart contracts not audited by reputable firm, or audit found critical issues that weren't fixed.Why it matters: Unaudited contracts can have exploits or hidden functions.Honeypot FunctionsRed flag: Contract allows buying but prevents selling, or owner can pause trading.How to check: Use honeypot checkers (Token Sniffer, RugDoc), or read contract code.Unlimited MintingRed flag: Owner can mint unlimited tokens.Why it matters: Can dilute your holdings to zero at any time.No Real ProductRed flag: Promises a product but nothing actually exists or works.Why it matters: Many projects raise funds for products they never build.Centralized ControlRed flag: Single wallet controls treasury, can upgrade contracts unilaterally.Why it matters: Centralized control means centralized risk.
Step 5: Behavioral Red FlagsHow the team and community behave reveals much.Banning CriticsRed flag: Anyone asking tough questions gets banned from community.Why it matters: Legitimate projects welcome scrutiny.Avoiding QuestionsRed flag: Team never addresses tokenomics, security, or fundamental questions.Why it matters: Evasion suggests things they don't want you to know.Constant PivotsRed flag: Project changes narrative/product repeatedly (was DeFi, now AI, next metaverse).Why it matters: Chasing narratives instead of building value.Insider ActivityRed flag: Large wallet movements before announcements, suspicious trading patterns.How to check: Track team wallets on block explorers.Delays Without CommunicationRed flag: Missed deadlines with no explanation or communication.Why it matters: Silent teams often become abandoned projects.
The 10-Point Red Flag ChecklistQuick checklist before any investment:☐ Real, verifiable team with relevant experience☐ Team allocation ☐ Clear token utility beyond speculation☐ Audited smart contracts from reputable firm☐ No guaranteed return promises☐ Organic community (not bots)☐ Working product or clear development progress☐ Transparent communication from team☐ Reasonable valuation vs comparables☐ No previous scam connectionsScoring:10/10 green: Proceed with due diligence7-9/10 green: Proceed with caution5-6/10 green: High risk - reconsiderIPO Genie's AI analysis automatically screens for many of these red flags, saving you hours of research.
Frequently Asked QuestionsQ: Can a project have red flags and still succeed?Some red flags are worse than others. Anonymous team? Maybe OK if code is audited and decentralized. No vesting? Almost always bad. Use judgment, but lean toward caution.Q: What if I already invested in a project with red flags?Evaluate honestly: are the red flags fixable? Is the project showing improvement? If not, consider cutting losses. Sunk cost fallacy ruins portfolios.Q: How do I check if a contract is safe?Token Sniffer, RugDoc, GoPlus - free tools that check for common contract red flags. For significant investments, pay for professional audit review.Q: Are all presales scams?No - legitimate projects have presales. But presales are where most scams happen because tokens are sold before there's a product to evaluate. Extra scrutiny is required.Q: What's the most common red flag that people miss?Short vesting. Projects announce team vesting as "1 year" and investors assume safety. But if 20% unlocks at TGE and the rest over 12 months, that's a pump and dump setup.
