How to Verify Presale Smart Contracts Before Investing

What is a smart contract in a presale?

A presale smart contract is a blockchain-level agreement that defines the supply and distribution structure for a token before its TGE (Token Generation Event). On the supply end, the presale smart contract shows the total supply of the token, and it explains whether the token has a finite or infinite supply. It reveals whether the creator can mint more tokens.

On the distribution end, a presale contract defines supply allocations, the vesting structure, and the claiming arrangement for presale investors. Other contracts to verify for new or existing tokens include

You can find the smart contract of a presale project through the following medium

• Social Media: You can find a presale project’s smart contract in social media announcements from the official project page.
• Official project documents: Presale contracts can also be found in official project documents like Whitepapers, pitch decks, launchbooks, and Documentation.
• Launchpads: Presale contracts can also be found on Launchpads hosting the token sale.

Always ensure that you obtain the correct smart contract address. Cross-verify smart contracts across multiple sources (social media, whitepapers, LaunchPads, etc) to ensure that you are using the right contract.

Step-by-Step Verification process before investing

Now that you have obtained the smart contract of the project you wish to invest in, let’s guide you through the verification process. For this guide, we will use Nexchain’s smart contract. 

We obtained the project’s contract address from Solid Proof’s Audit result. You can find the presale project’s contract address from other sources; however, ensure to validate it. With the Contract address, we will proceed to run a few verifications. The process is similar for other pre-sale projects.

Check the Contract on a Block Explorer

1. Run the contract through a block explorer to obtain contract information. Use explorers that are specific to the token’s networks. (EtherScan for Ethereum, Solscan for Solana).
2. Review the basic contract information like the Creator’s wallet, date created, official ticker, and any transactions. 
3. Follow the creators’ wallet and review their activity.Find out if the creator’s wallet was funded by a suspicious account or mixers, and if it performed any suspicious transactions.Treat a suspicious creator as a major red flag.Confirm Contract verification badge
4. Now scroll down to the advanced section to evaluate other information

Check if the contract is verified. Verified contracts have a green tick. The verification tick shows that the contract has been parsed and is readable. It is proof of transparency. Unverified smart contracts are not auditable.

Note that having the verification badge does not mean that a token is secure.

Ownership and Privilege verification

The owner of a smart contract can call functions like Mint() and Disable sales. As an investor, ownership rights are an important consideration. To review the ownership rights and privileges

Navigate to the contract section and scroll through the code to find owner functions. If you are not tech-savvy, you can use smart contract audit tools like Hacken, Certik, and Audit Proof. For instance, let’s scan the NexChain smart contract on Certik

1. Visit the Certik Scan platform
2. Enter the Presale contract and select a chain
3. Click Start Scan to proceed.
4. Using the scan result, verify ownership privileges.
5. Check if the ownership has been renounced and if the owner can disable sale.

Mint Function Audit.

The mint function enables a smart contract creator or owner to mint more tokens. While legitimate tokens may have mint functions, the purpose must be explicitly disclosed by the project team. Tokens marketed as a finite supply should not have a mint function, or the mint must be disabled.

To check for the mint function

1. Using a block explorer
2. Navigate to the code section
3. Search Mint in the search bar and check the results for a possible mint() function.
4. Check if the function disables or enables mint

Using a Security Scanner

1. Scroll through the scan results
2. Check if the token is Mintable

Token distribution and vesting inspection

Verifying the token allocation structure is also important. The Tokenomics define how the supply is shared between parts of the project, like the Team, marketing, investors, community, etc. Also, inspect the vesting contract to verify the token lock and release schedule.

You can use tools like UNCX to verify the vesting schedule of tokens. Here, we will use the token contract for a random token to inspect vesting schedules. 

1. Visit the UNCX application
2. Search the token’s contract in the search bar
3. Navigate to the token’s page to view vesting schedules and inspect.

Buy/Sell function safety tests

Cases of Honeypots are popular in the Dex-traded tokens. Honeypots allow you to buy a token but restrict sales. Before investing in a project, it is recommended that you verify if you can easily buy and sell with reasonable slippage.

A crude way to test the Buy/Sell function safety is by purchasing a very small amount and selling it.You can also use block explorers and security scanners like Certik and Honeypot.is to check if a token is a honeypot.

1. Using a scanner like Certik
2. Scan the contract as shown earlier
3. Scroll down to Is Honeypot to verify if the token is a honeypot.

Liquidity lock validation

Liquidity locks are smart contracts that restrict liquidity providers from removing their liquidity. Smart contract locks protect investors from rug pulls. Review the liquidity contract of the token to validate the locking conditions. Liquidity lock validation can only be checked after TGE and the presale token launches on a decentralized exchange

To validate liquidity locks, use LP lock tools like UNCX. UNCX easily provides information on liquidity locks for Dex tokens. For this guide, we will check the liquidity lock duration for SPX6900

To validate the liquidity lock using UNCX,

1. Visit the UNCX application
2. Search the token contract
3. Navigate to the token’s page and select liquidity
4. On the liquidity page, you will see if the liquidity is locked and for how long it is locked.
5. You can also obtain the liquidity pool contract from the UNCX page for further validations. You can find this in the left corner of the liquidity page.

Proxy Contract Checks

Proxy contracts delegate contract calls to another contract. They are intermediary and connectors to an external contract that defines the blockchain-level agreement. Proxy contracts enable developers to easily upgrade a smart contract and add new features. However, they pose security risks. Such as

• Security Vulnerability: proxy smart contract handling and upgrade processes may expose the whole token smart contract to risks that can be exploited by hackers.
• Malicious deployments: Smart contract creators can upgrade the smart contract to include unfavorable conditions, like adding a mint function or disabling sales.
• Oversights in Implementation: The implementation or upgrade process for a proxy contract may interfere with the tokens’ development. While the issues may not make the smart contract vulnerable to exploitation, they may affect the token’s structure.

Checking for proxy contracts

You can check if a presale contract is a proxy contract using explorers and security scanners.

• If you are using an explorer, the proxy contract code shows up in the contract section.If there is no proxy contract code, then the contract is likely not a proxy contract. You can also check if the contract is a proxy using a security scanner.
• Check for Is Proxy in the scan results to validate if there is a proxy contract.