What is a honeypot crypto token?

A honeypot crypto token is a scam token whose code lets people buy it but stops them from selling. Buyers see the price rise and their balance grow, yet any attempt to sell fails. The creator keeps the money that came in. It is a close cousin of the rug pull, where the creator drains a project's funds, and the two are sometimes combined.

How does a honeypot crypto scam work?

A token is just a smart contract, and its creator decides what the code allows. In a honeypot, the scammer writes a token that looks normal, adds some liquidity on a decentralized exchange, and promotes it. Binance.US describes scammers generating fake trading activity and heavy hype so buyers rush in for fear of missing out. Once enough money has arrived, the creator withdraws it and often launches a fresh token to repeat the scheme.

CertiK reported in January 2024 that one operator was deploying a new honeypot roughly every 30 minutes. It also cited the 2021 Squid Game token, named after the TV series, as an example of social media hype drawing buyers into a token they could not sell.

Why can't you sell the token?

CertiK's analysis of honeypot contracts describes several hidden tricks:

• Blacklists. Buyers are added to a list, and the sell function refuses anyone on it. The code may hide this behind a harmless-sounding function name.
• Balance changes. The contract silently cuts a buyer's balance to almost nothing, while a block explorer may still show the original figure.
• Impossible minimums. Selling is allowed only above a threshold that keeps rising, so no one can reach it.

Binance.US adds that some contracts charge sell fees so high that selling is pointless.

The term has an older meaning too. A 2019 study presented at the USENIX Security conference described honeypots as contracts that look vulnerable but contain hidden traps, catching people who try to exploit them. The researchers found 690 such contracts among more than 2 million they analyzed.

How does a honeypot checker work?

A honeypot checker is a tool that inspects a token contract, and often simulates a buy and a sell, to see whether selling would work. Exchanges and wallets increasingly build similar scans in; Binance.US offers a token audit tab in its wallet. Binance.US notes such tools support research but do not guarantee a token is safe, since contracts can be changed by an owner or written to pass a simulation.

Warning signs that CertiK and Binance.US list include:

• A price chart that is almost entirely green, with few or no sells.
• Contract code that is unverified on a block explorer.
• Most of the supply held by a handful of wallets.
• A token pushed hard in trading chats or that imitates a well-known project.

More general checks are covered in how to research a crypto project. Anyone who already holds a token they cannot sell may be approached by people offering to unlock it, a pattern described in crypto recovery scams.