Fake tokens: common questions
As DeFi keeps growing, new projects and tokens are created all the time. Unfortunately, not all of those tokens are created with good intentions.
- What is a fake token?
- What is a scam token?
- Why are there fake/scam tokens in my wallet?
- What do I do with the fake/scam tokens in my wallet?
- How do I check if a token is fake?
- How do I check if a token is a scam?
What is a fake token?
One thing you must know about when it comes to DeFi: anyone can create a token and give it any name they want. This means that there are many scam tokens that are meant to look like popular tokens. Attempting to trade a fake token will result in your transaction not going through and you will end up losing the money you'll have to pay as the network fee.
What is a scam token?
A token might not be posing as another popular token and instead, look like it's a completely legitimate new token. The risk here is that any new token that you intend to purchase might be created with the sole purpose of stealing your money. The price of a token might decrease significantly after you purchase it. One popular practice of that kind is a Rug pull. A project is created and hyped with lots of liquidity put into it to create the look of a potentially profitable investment. After enough people have invested, however, the creators pull out the liquidity which leads to the price taking a nosedive. After that, the investors are left holding the tokens which no longer have any value.
Why are there fake/scam tokens in my wallet?
The most common way of distributing such tokens is Airdrops. Airdropping has been around for quite a while and there are a lot of totally legitimate reasons to use it, they can be used to artificially create interest in a possible scam token. There is, unfortunately, no way to protect yourself from scam token airdrops. New fake and scam tokens are created every day. As stated above, anyone can create a token. Even if there was a way to 'block' a fake token from being sent to your address, a dozen more will be created on the same day.
What do I do with the fake/scam tokens in my wallet?
First of all, it should be noted, that the fake/scam tokens that may appear in your wallet belong to one of these three networks: ETH, BSC, and Polygon. These networks are the easiest to create fake and scam tokens on. If there is a token in your wallet that you don't recognize and it belongs to one of the three networks mentioned earlier, chances are quite high that those are fake/scam.
If you see some tokens in your wallet that you don't recognize, do not try to swap or send them away immediately. The swap transaction will be declined and you will lose money on the network fees. Instead, do a little bit of research online, to see if any other users reported seeing the same in their wallets. If you confirm that the tokens that you have in your wallet are fake, the best way is to simply ignore them and filter them out.
How do I check if a token is fake?
Price chart in the wallet
While new fake are being created all the time, we still try to stay on top of them and add all the known ones to a blacklist. These blacklisted tokens will not have a price or a price chart. It is important to note, however, that not all assets without a price are fake. Some legitimate tokens may not have a price as well. More about it here. This is what it looks like:
The easiest way to do so is to check the market value of the coin you have on the block explorer. This method will work for fake tokens of ETH, BSC, and Polygon networks. Copy your ETH (BSC, Polygon) address and check it on the block explorer. Use Etherscan for ETH-based tokens, BscScan for BSC-based tokens, and PolygonScan for Polygon-based tokens. In the screenshot below, the address holds one million USDT.
If we click on the token itself, however, we'll get more detailed information about it, including its contract address.
By clicking on the contract address, you'll be able to see that the value of this token is 0.00 which is a clear indication of it being fake. You can also then compare this contract with the contract of the real USDT token.
Real USDT token:
A similar case with fake BTC on BscScan:
This one does not have any value either, unsurprisingly.
And a similar case with a token from the Polygon network:
An additional way of checking if the token is fake is Token Sniffer. Token Sniffer is an easy-to-use tool to look up information on tokens on both Ethereum and Binance Chain. All you need to do is to copy the contract address and look it up on the TokenSniffer. It will analyze the token and provide info on possible exploits, a contract audit, etc.
Here's what the analysis of the aforementioned fake USDT on Token Sniffer looks like:
How do I check if a token is a scam?
Dextools works with both Ethereum and BSC and provides a general overview of what state the token is in. After searching for the token contract address or name, you'll be able to check the list of all the purchases and sales of that token. The absence of any sell orders or sales that are only done by the developers is a sign that a token might be a scam. There will also be a warning if the platform's algorithms deem that token suspicious.
In this example you can see an overview of the IOV token:
Unicrypt is a useful tool to check the liquidity status of a certain token. If the token developers' initial liquidity is locked, it means they can't withdraw the funds (rug pull, mentioned above), effectively stealing funds from you, the token holder.
Here's an example of what the aforementioned IOV token looks like on the Unicrypt: