What is Honeypot Scam? How to Avoid Being Scammed?

Definition of Honeypot Scam

The honeypot scam is a carefully designed fraud where the scammer sets up a "trap" in advance and lures investors in with bait. Once an investor participates, they are unable to exit. This type of token is also referred to as "Honeypot" due to its "money only flows in, not out" nature.

How Does the Honeypot Scam Work?

1. Heavy Promotion and Hype Scammers use advertisements or endorsements from KOLs to grab attention and boost visibility.

2. On-chain Transaction and Price Manipulation Users are manipulated into buying the token on the blockchain (usually Layer 1). The scammers manipulate the price to attract more people to buy in.

3. Non-redeemable Tokens Although the token price may surge 10x or even 100x, users are unable to swap the tokens for other assets or withdraw their funds.

4. Fund Transfer and Loss of Investment Once enough funds are invested, the scammers transfer all funds, leaving investors with nothing.

Why Are These Scams So Effective?

Honeypot scam exploit people's desire for high returns and their unfamiliarity with blockchain technology. When investors see rapid price growth, they often experience "Fear of Missing Out" (FOMO), making them more likely to be lured into participating.

How to Avoid Falling into the Honeypot Scam?

1. Stay Vigilant: If a project promises high returns but lacks transparency, be cautious.

2. Do Thorough Research: Review the project's whitepaper, the background of the development team, and the smart contract code. If the code is designed with a "money-only-in" mechanism, avoid it immediately.

3. Check Liquidity: Ensure that the token has sufficient liquidity and can be traded on reliable decentralized exchanges (DEX) like Uniswap or PancakeSwap.

4. Avoid Blind Following: Do not invest just because of recommendations from KOLs or ads. Always think independently and seek professional advice.

Key Characteristics of Honeypot Scam

• Money-only-in, not out: The funds invested cannot be redeemed or swap.

• Clear Price Manipulation: The token price increases rapidly, attracting more users to participate.

• No Effective Trading: Even if the token price spikes, users cannot sell or swap.

Conclusion

The honeypot scam is a fraud that exploits blockchain market characteristics and users' psychological weaknesses. The desire for high returns often blinds people to red flags. Investors should remain rational, thoroughly research the project, and be cautious in order to avoid losing their funds.