The Web3 space in 2025 saw projects raise anywhere from $3.75 million to over $1 billion in single funding rounds. Some of these projects will create generational wealth for early investors. Others will collapse within months, taking millions in investment with them.
Learning to spot red flags early can save you from devastating losses. The difference between a legitimate project and an elaborate scam often comes down to a few key warning signs.
This guide will teach you what to watch for when evaluating new Web3 projects. These are the same signals professional investors use to filter through hundreds of opportunities. For a complete evaluation framework, see our comprehensive guide to researching Web3 projects before investing.
Team and Leadership Warning Signs
The team behind a project tells you almost everything you need to know. This is where your research should always start. Learn how to conduct thorough team background checks including LinkedIn verification, GitHub analysis, and reputation tracking.
Anonymous or Fake Teams
Anonymous teams aren’t always bad. Some legitimate projects start with anonymous founders. But in 2025, most serious projects have public teams with real identities.
If a team is anonymous, they need an incredibly strong reason why. Privacy concerns can be valid for certain types of projects. But if they’re raising millions while hiding their identities, that’s concerning.
Check if team members exist on LinkedIn. Real people have professional histories you can verify. If someone claims to be a former Google engineer but has no LinkedIn or online presence, that’s suspicious. Search for their names with the project name. See what comes up. Real team members give interviews, speak at conferences, and engage publicly with their work.
Exaggerated or Unverifiable Claims
Teams that claim everyone worked at Facebook, Google, and Microsoft should be easy to verify. Check their LinkedIn profiles. Look for confirmation from others who worked at those companies.
Be suspicious of titles like “Former Blockchain Lead at [Major Company]” when that company doesn’t even have a blockchain division. Some teams invent positions that never existed.
Watch for teams that list advisors who never agreed to advise. Scammers put famous names on their website hoping nobody checks. Real advisors actively mention the projects they support.
Lack of Technical Expertise
Web3 projects need technical talent. If the entire team is marketing and business people with no developers, that’s a problem.
Check the GitHub to see who’s actually building. Real technical teams have active GitHub profiles with histories of contributions. Empty or inactive GitHub accounts are massive red flags. Look at how the team talks about technology. Do they understand what they’re building? Or do they use buzzwords without substance?
Tokenomics Red Flags
How a project structures its token tells you a lot about their intentions. Bad tokenomics usually means bad outcomes for investors.
Unfair Token Distribution
Check how tokens are distributed. If the team and early investors control 80% of the supply, retail investors get squeezed.
Fair projects typically allocate 30-50% to the community. The rest goes to team, investors, treasury, and development. Anything heavily weighted toward insiders is concerning. Look at vesting schedules. Teams and investors should have long lockup periods—typically 1-4 years. If they can sell immediately after launch, they probably will.
Be extra cautious about projects where the team gets tokens with no vesting at all. This means they can dump on retail investors immediately.
Unrealistic Token Utility
Every project claims their token is essential. But many tokens have no real purpose except speculation.
Ask yourself: does this project actually need a token? Many Web3 projects could function fine without one. If the only use case is “governance,” that’s often weak.
Real utility means the token is required to use the service. Stablecoins need their tokens for payments. DePIN networks need tokens to incentivize hardware providers. These are real use cases.
If you can’t explain why the token is necessary in one sentence, it probably isn’t.
High Tax or Transaction Fees
Some projects charge ridiculous fees on every transaction. You might see 10% fees on buys and sells. This is almost always a scam.
These high fees go directly to the team or into liquidity pools they control. It’s a way to extract value from retail traders. Legitimate projects have minimal transaction fees—usually under 1%. Anything higher needs a very good explanation.
Marketing and Community Red Flags
How a project markets itself reveals their true priorities. Scams prioritize hype over substance.
Overhyped Promises
If a project guarantees you’ll make money, walk away. Nobody can guarantee returns in crypto.
Watch for language like “100x guaranteed” or “can’t lose investment.” These are always lies. Even the best projects carry risk. Projects that focus entirely on price are suspect. Real projects talk about technology, use cases, and solving problems. Scammers only talk about making you rich.
Paid Influencer Campaigns
Many projects pay influencers to shill their token. This isn’t automatically bad—legitimate projects do marketing too.
But if every influencer posts the same day with identical messaging, that’s coordinated manipulation. Real organic interest develops gradually.
Check if influencers actually use the product. If they’re promoting it but never interact with it on-chain, they’re just getting paid. Look at the comments on promotional posts. Real communities ask questions and discuss the project. Bot comments are generic praise with no substance.
Pressure Tactics and FOMO
Scam projects create artificial urgency. They announce flash sales or limited-time offers to prevent you from researching.
“Whitelist spots filling fast!” is a classic manipulation. Real projects give adequate time for people to evaluate opportunities. If you feel rushed or pressured to invest immediately, that’s intentional. They don’t want you to think critically.
Fake Community Engagement
Check Telegram and Discord member counts versus actual activity. Scams buy thousands of bot accounts that never speak.
Real communities have organic conversations. People ask questions, debate ideas, and discuss the technology. Fake communities are silent or only have generic comments. Look at when the community was created. If a project claims to be established but their Discord is two weeks old, something’s wrong.
Technical and Development Red Flags
The actual technology tells you if a project can deliver on promises. Many projects have fatal technical flaws from the start. Our technical evaluation framework shows you how to assess smart contracts, GitHub activity, and product functionality.”
No Working Product
In 2025, investors expect to see functioning products before token launches. A whitepaper and promises aren’t enough anymore.
If a project is raising millions but has nothing to show, be very careful. They might have a good idea, but can they execute?
Test the product yourself if possible. Does it actually work? Is it buggy? Would real users actually use this?
Compare what exists to what they’re promising. If they claim revolutionary technology but show a basic website, that gap should concern you.
Copied or Plagiarized Code
Some projects literally copy code from other projects and claim it as their own. This is easier to check than you think.
Visit their GitHub repository. Look at the commit history. Real development shows steady progress with multiple contributors.
Search for similar code online. If their “revolutionary” smart contract is identical to another project, they copied it. Projects that hide their code entirely are suspicious. Open source is standard in Web3. Closed source projects need strong reasons for secrecy.
Failed Audits or No Audits
Smart contract audits are essential for DeFi projects. If a project handling money hasn’t been audited, don’t invest.
Check who did the audit. Reputable firms include CertiK, Trail of Bits, and OpenZeppelin. Unknown auditors might be fake.
Read the audit report yourself. Most audits find some issues. What matters is how severe the issues are and if they were fixed. If a project claims to be audited but you can’t find the report, they’re lying. Real audits are publicly posted.
Financial and Funding Red Flags
How a project handles money reveals their true character. Watch for these warning signs.
Unverifiable Funding Claims
Many projects claim to have raised millions from top venture capital firms. Some of these claims are completely fake.
Check crypto fundraising databases. Sites like Crunchbase and crypto-specific trackers record major funding rounds.
Look for official announcements from the VCs themselves. Legitimate firms announce their investments publicly. If you can’t verify a claimed funding round anywhere, assume it didn’t happen.
Lack of Transparency
Projects should clearly show where money goes. Development, marketing, operations—these should be explained.
If a project can’t or won’t explain their budget, they’re hiding something. Maybe incompetence, maybe theft—either way, it’s bad. Treasury management should be transparent. Many DAOs show exactly what’s in their treasury and how funds are allocated.
Constant Need for More Funding
Some projects are always fundraising. They raise a seed round, then immediately start raising more money.
If a team can’t make progress on their initial funding, they probably won’t make progress with more money either. Multiple funding rounds in quick succession often mean the team is burning cash without building anything valuable.
Regulatory and Compliance Red Flags
The regulatory environment in 2026 is more serious than ever. Projects that ignore compliance face severe consequences.
Operating in Legal Gray Areas
Some projects deliberately operate where regulations are unclear. This might work temporarily but creates huge risks.
Projects that refuse to implement any compliance measures are betting against regulators. That’s a losing bet long-term.
If a project is banned or restricted in major markets, that limits growth potential significantly.
Ignoring KYC/AML Requirements
Not all projects need extensive KYC, but projects handling large sums should have some compliance measures.
Projects that brag about avoiding all regulations are inviting enforcement action. When it comes, token prices usually collapse. Look for projects working with regulators, not fighting them. The 2025-2026 regulatory clarity favors compliant projects.
How to Use This Information
You don’t need every red flag to avoid a project. Even one or two major warning signs should make you reconsider.
Create a simple scoring system. Count the red flags you find. More than three significant issues? Walk away.
Remember that FOMO is your enemy. Missing one opportunity is fine. Losing money to a scam is not. Share information about red flags with others. The community gets stronger when we protect each other from bad projects.
When Red Flags Don’t Mean Scam
Not every red flag means a project is doomed. Context matters.
Early-stage projects naturally have incomplete products. The question is whether they’re making real progress.
Small teams aren’t automatically bad. Some of the best projects started with just a few developers. But those developers should be skilled and visible. Anonymous teams can be legitimate in specific contexts, especially for privacy-focused projects. But they need exceptional technology to compensate for the trust deficit.
What’s Next?
Evaluating Web3 projects gets easier with practice. The more projects you analyze, the faster you’ll spot problems. Start with the team. If you can’t verify who’s building, don’t invest. Move to tokenomics next. Bad token distribution usually means bad outcomes.
Check the community and marketing. Real projects build communities over time. Scams manufacture hype overnight. Finally, look at the actual technology. Can they deliver what they promise? Do they have the skills and resources?
The Web3 space has incredible opportunities in 2026. But it also has sophisticated scams. Your job is knowing the difference before you invest.
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