How to verify smart contracts before connecting your wallet

📖 Why it’s important to analyze smart contracts

The goal of this guide is to provide beginners with a clear, step‑by‑step method for independently checking smart contracts: what to open in a block explorer, what to look for in the source code, which red flags appear most often, and how to minimize risk before you connect a wallet or grant approvals.

🔍 Checking a smart contract’s source code

The first thing to confirm is code verification in the block explorer (Etherscan, BscScan, Polygonscan, etc.). A verified contract provides transparency: its sources are uploaded and match the deployed bytecode, and you can inspect the Read/Write Contract tabs and the ABI. Verification makes it possible to audit the logic and ensure the contract behaves as claimed. If the source is not published, that is a substantial risk: you don’t know what logic you are authorizing.

How to proceed: open the contract address → the Contract tab → check the Verified status and the file structure. Even if you’re not a developer, having the sources is already a plus: you can run the code through automated analyzers and spot potential issues.

🔑 Critical functions and permissions: approve, transferFrom, permit

approve(spender, amount) is the standard ERC‑20 function that grants a contract the right to spend your tokens. After that it can call transferFrom and take the approved amount without additional confirmations. Attackers often request an “unlimited” Approve (∞) or demand SetApprovalForAll for NFTs (ERC‑721/1155), which grants full control over the collection. Ledger separately notes that SetApprovalForAll is an extremely risky interaction for unprepared users.

The recommendations are straightforward: grant the minimum sufficient allowance, avoid “∞,” check carefully who you are granting rights to and for what, and revoke unnecessary permissions after use.

🔄 Proxies and upgrades: why this is a risk

The Proxy pattern lets the contract address remain unchanged while switching the implementation via delegatecall: the proxy forwards calls to the implementation, whose address can be updated. This approach is convenient, so it’s used by major protocols and well‑known collections. For users, however, it introduces extra trust: today you reviewed the implementation code, and tomorrow the owner (or a multisig) may upgrade the logic. Your previously granted approvals remain, and the new implementation can use them.

🛠️ Analysis tools: from static scanners to extensions

Combine several tools — they complement each other and cover different classes of risk:

• MythX — cloud code analysis (static analysis, symbolic execution, ML heuristics) for finding vulnerabilities and anti‑patterns.
• Slither — a fast Solidity static analyzer by Trail of Bits; it finds common mistakes and provides specific recommendations.
• Remix IDE — an online development environment with plugins for automated checks; convenient for basic diagnostics of sources without installing software.
• Token Sniffer — checks tokens against known scam patterns and maintains a database of scam contracts; noted even in U.S. Treasury materials as a helpful reference.
• BSCheck — quick token screening: ownership status (has ownership been renounced), liquidity (is it locked and for how long), honeypot indicators, holder distribution.
• GoPlus Security — an ecosystem of APIs and extensions that assess token risks and warn about phishing or suspicious actions directly in the browser.
• De.Fi Scanner — a free smart‑contract scanner for common vulnerabilities and rug‑pull signals; the reports are accessible to non‑technical users, and there’s a Shield module for reviewing wallet approvals.
• Additionally: Honeypot.is — a honeypot detector; revoke services — to cancel approve; Wallet Guard and Pocket Universe — for transaction simulation and phishing protection.

🚩 Common scam patterns in token code

Fraudulent tokens often reuse the same tricks. The most dangerous include:

• Honeypot — you can buy but cannot sell. The code blocks selling for most addresses, while a whitelist allows only the owner to withdraw. On price charts you’ll often see buy‑only activity; scanners flag it as a honeypot.
• Dynamic lock — turning trading on/off under certain conditions, address blacklists, trading “windows”; the token looks normal until the lock triggers.
• Adjustable fees — the owner can raise the tax to 100%, effectively paralyzing sales. Look for setFee/setTax functions and maximum caps.
• Unlimited mint — additional token issuance without hard limits. Any “central printing” = instant balance devaluation.
• Liquidity withdrawal — no LP lock, sudden Remove Liquidity to the owner’s address, proceeds sent to external wallets.

Most of these signs are automatically detected by Token Sniffer, BSCheck, and De.Fi Scanner. The final decision, however, is always yours: when in doubt, don’t connect.

⚠️ Hidden risks: owner privileges, pausable, backdoors

The Ownable pattern grants the owner special privileges. That’s acceptable when functions are reasonably constrained, but it’s important to understand their scope:

• Changing critical parameters (taxes, recipient addresses, limits).
• Pausable — the ability to halt transfers or trading entirely.
• mint/burnFrom — minting or burning from other people’s balances.
• Non‑standard hidden methods (“backdoors”) disguised under harmless names.

What to do: review the sources (or scanner reports), check the logs for OwnershipTransferred/RoleGranted/Paused events, verify the owner’s status (whether they used renounceOwnership), and monitor transactions from the owner address.

💰 DeFi contracts: liquidity, lending, farming

In DeFi we interact not only with tokens but also with pools, lending protocols, and farms. Basic checks:

• DEX pools. Use reputable DEXes. Custom forks may contain hidden fee logic or even a “withdraw funds” switch.
• Lending. Look for audits by reputable firms, sensible caps, sound liquidation mechanics, and reliable oracles. Most catastrophes are economic, but unaudited code is an additional risk.
• Farming/staking. Inspect MasterChef‑style contracts: emission rate, deposit limits, owner roles. “Infinite emission” of rewards is a classic path to devaluation.
• General. Look for bug bounties, multisig‑based administration, incident history, and TVL. Small TVL plus a young project = only “money you can afford to experiment with.”

🖼️ NFTs and mints (ERC‑721/1155): essential checks

Before minting or trading:

• Official address. Cross‑check the address with project sources or marketplaces; fakes often differ by a single character.
• Supply cap. Look for maxSupply and minting rules; the absence of caps risks dilution.
• Dangerous permissions. Third‑party sites must not force SetApprovalForAll “for everything.” Any attempt is a signal to stop interacting.
• Metadata. IPFS/Arweave is preferable to centralized CDNs for resilience and predictable content.

🧩 OpenZeppelin and “recognizable” templates

Using the OpenZeppelin Contracts libraries is a good signal: these are battle‑tested implementations of standards (ERC‑20/721/1155, roles, pause, etc.) that have undergone numerous audits and extensive production use. In verified sources, look for import "@openzeppelin/...", compare with canonical templates, and review the “Similar Contracts” tab. Don’t drop your guard, though: a clean template often gets a couple of extra lines — and that’s exactly where a trap can hide.

🐳 Token features: taxes, blacklists, anti‑whale

Some mechanics aren’t scams per se but affect the user experience and risk profile:

• Taxes (tax/fee). Entry and exit fees reduce your final proceeds. What matters is whether rates are fixed and whether caps are enforced — otherwise the owner can raise them to 100%.
• Blacklist. Address blacklists are framed as anti‑bot measures but can be used against holders. Good practice is to disable them after launch.
• Anti‑whale. Limits on balance or transaction size protect liquidity but can hinder “all‑at‑once” transfers. Clarify exceptions (service addresses are often exempt).
• Reflections/Rewards. Automatic fee redistribution among holders is attractive but complicates the code and can introduce vulnerabilities. Without an audit, it’s risky.

🔗 What to look for in block explorers: history, calls, events

A block explorer is your primary tool for due diligence:

• Timeline and activity. Deployment date, interaction frequency, distribution of activity. A “fresh” address with a handful of mutually interacting wallets is often a sign of wash‑like activity.
• Holders. Concentration among top addresses; the owner’s share; shares of contracts and exchanges. An outsized balance at a single wallet = dump risk.
• Liquidity. Whether LP is locked, for how long, and who holds the LP tokens. Sudden Remove Liquidity events are a red flag.
• Read/Write Contract. The ability to call functions directly (for example, to withdraw your funds) without relying on the project’s frontend.
• Comments/Labels. Notes and labels aren’t definitive, but they are signals. A flood of “SCAM!” comments is a cue to walk away.
• Events. Transfer from 0x0 (mint), Approval (mass approvals to strange addresses), OwnershipTransferred/Paused — quick indicators of change.

📋 Checklist before connecting

1. Check the address in an explorer: code verification, deploy date, holders, suspicious transactions, labels.
2. Run it through scanners: Token Sniffer / De.Fi Scanner / GoPlus. Any critical red flag — don’t connect.
3. Confirm the frontend’s legitimacy: check the URL, look for reviews and analyses, and avoid “gift” links.
4. Start with a burner wallet: a separate address with a minimal balance for first contact.
5. Minimize approvals: avoid “∞”; where possible, limit to the specific operation.
6. Simulate the transaction: use extensions that preview actions before signing.
7. Know where to revoke rights: use revoke services and Token Approvals panels; periodically review your list of approvals.

🚫 What checking does not guarantee

• Frontend honesty. The interface may substitute the address or data. Always match what your wallet shows with the expected action.
• Team integrity. The code can be clean while the team’s actions are not. An audit doesn’t protect against off‑chain rug pulls.
• Economics. A technically flawless token can still go to zero due to market factors or design errors.
• Future updates. With upgradeable contracts, risk evolves over time — monitor upgrades.
• Social engineering. Code checks won’t save you from phishing or seed‑phrase leakage. Security hygiene is mandatory.