Beware of Crypto Honeypots: Essential Scam Prevention Tips for Investors

What exactly is a honeypot? A seemingly vulnerable perfect trap

In the blockchain world, there is a special type of smart contract that appears to be riddled with vulnerabilities but actually hides deadly traps — this is known as a “honeypot.” Simply put, a honeypot is a deliberately designed contract trap where scammers deploy these contracts on networks like Ethereum, making it look easy for users to profit from them, but in reality, they cannot withdraw any funds.

This scam is as cunning as a hunter’s trap: the first layer is an obvious “vulnerability” (bait) that attracts self-proclaimed clever investors to try arbitrage; the second layer is hidden code logic (the real trap), which triggers when someone attempts to withdraw funds, causing the transaction to be blocked or fail. Scammers often pre-fund the contract with a small amount of money as bait, making everything seem more credible.

How honeypot scams operate step by step

The scam follows a classic three-step pattern:

Step 1: Set the bait — The scammer deploys a smart contract on the blockchain that appears to have obvious vulnerabilities, and invests initial funds to increase credibility. The process is not technically difficult; ordinary users with basic programming knowledge can do it.

Step 2: Attract victims — Investors, by examining the contract code or rumors in the community, believe they have discovered an “arbitrage opportunity.” They start investing, hoping to trigger the apparent vulnerabilities in the contract to steal funds.

Step 3: Funds are locked — The critical moment arrives. When victims try to withdraw or transfer funds, the hidden code in the contract triggers immediately, causing the transaction to fail or be rejected. At this point, the funds are transferred to an address only accessible by the scammer, leaving victims empty-handed.

Real case warnings: lessons from Dechat and Squid Game

Chain reaction of the Dechat incident

In February 2024, Web3 messaging protocol Dechat made a fatal mistake when launching its new token DECHAT. They shared an incorrect link to a honeypot contract in their official announcement, causing many trusting users to become victims. The incident was only uncovered after researcher ZachXBT exposed it. Dechat quickly deleted the erroneous post and updated the correct link. Although the team acted swiftly, some users had already suffered losses. In the community, users angrily asked: “You posted the wrong contract address! I lost money because of it! Will there be compensation?”

This case reminds us that even seemingly legitimate projects can become accomplices in honeypot scams due to human error.

The madness and collapse of Squid Game token

The Squid Game token scam in November 2021 is one of the most famous honeypot cases in crypto. Scammers exploited the popularity of Netflix’s hit series “Squid Game” to create a seemingly hot token on the BNB chain.

The entire scam process was eerily similar: user @jonhree112 posted on Twitter predicting SQUID token would surge, attracting many followers. Investor Luke Hartford bought when the token was around $0.9, witnessing a crazy rally to $5. When the price hit a peak of $2,861, Hartford was still excited, but then he noticed suspicious signs — other investors reported they couldn’t sell their tokens on Twitter.

The shocking truth was revealed: the contract creator withdrew $3.36 million from the project in one go, and the token price plummeted to nearly zero within minutes. Ultimately, statistics show that scammers stole a total of $6.38 million worth of BNB through this honeypot scam, transferring the funds via Tornado Cash to other addresses, completely cutting off traceability.

How to identify honeypots: an investor’s self-protection guide

Observe trading liquidity

The most straightforward way to identify is to check the token’s trading history. In normal tokens, users should be able to buy and sell freely at any time. But in honeypot scams, a clear sign is: trading volume shows many people buying, but almost no one can successfully sell. If you find a token that “only goes in but not out,” it’s a very strong warning sign.

Check the contract code for suspicious logic

For technically inclined investors, directly examining the smart contract’s source code can help. Honeypots often include special restrictions in transfer or withdrawal functions, such as granting special permissions to certain addresses, or deliberately disabling certain operations. If you find that the owner address has abnormal powers (like freezing, destroying, or transferring others’ funds), it’s a warning.

Use data science tools

Currently, several blockchain security firms have developed honeypot detection tools that use machine learning algorithms to classify contracts. These tools scan for known honeypot features in the code and provide risk ratings. Investors can use these free or paid tools before investing.

Check the project’s community reputation

Look for discussions in official channels and social groups. If a token has been flagged multiple times for honeypot issues, or many users report being unable to sell, the project is almost certainly a scam. Don’t rely solely on one source; cross-verification is always necessary.

The dual nature of honeypots: why do people still talk about them

Honeypots are actually a double-edged sword in cybersecurity. From a defensive perspective, legitimate cybersecurity teams deploy honeypots to lure real hackers, collect attack behavior data, exploit methods, and gather information on new malware. This defensive honeypot helps security experts upgrade their protection strategies without harming real systems.

However, in the crypto space, honeypots are weaponized by criminals, becoming tools for scams. That’s why incidents like Squid Game and Dechat happen.

Another characteristic of honeypots is their concealment — compared to traditional scams, honeypot schemes can evade detection longer because they leverage blockchain transparency to fake credibility.

Final warning

For crypto investors, understanding honeypot scams is not paranoia. The permanence of blockchain means that once scammed, funds are almost impossible to recover. Instead of relying on future regulation or compensation, it’s better to conduct thorough due diligence before investing.

Remember these three points: don’t just look at price increases, check liquidity; don’t blindly follow the crowd, verify sources; don’t ignore warning signs, confirm through multiple channels. In this market full of opportunities and traps, caution is always the best investment strategy.