Smart Contract Scams: How Wallet Drainers and Fake Approvals Work

Smart contract scams use code—often disguised as a useful decentralized app (dApp)—to trick you into giving permission to move or spend tokens from your wallet. Once you grant the wrong approval, a single malicious contract can drain many tokens at once. Understanding how these smart contract scams work is essential for anyone using DeFi, NFT marketplaces, or decentralized exchanges.

How Smart Contract Scams Work

Fake Approvals and Infinite Allowances

Many tokens use an approval model: you approve a contract to spend tokens on your behalf. Scammers ask you to approve a contract and sometimes ask for an infinite allowance (no expiry). If the contract is malicious, it can sweep any token you hold that uses that allowance.

Malicious dApps and Phishing Interfaces

Attackers clone legitimate dApps, such as Aave, or create convincing front ends that trick users into connecting wallets and signing dangerous transactions. The UX looks normal, but the request grants broad permissions.

Token Rug Pulls & Hidden Transfer Logic

Some tokens include transfer hooks or hidden logic that allow creators or an approved contract to freeze or drain liquidity after users buy in. Combined with approvals, this can lock or steal user funds.

Contract-Triggered Drain Scripts

Sophisticated scammers deploy on-chain scripts that, once allowed, automatically move funds to attacker-controlled addresses—sometimes in a chain of intermediary contracts to obscure the money trail.

Real-World Red Flags (What To Watch For)

• A dApp requests an infinite approval instead of a one-time or limited allowance.
• The transaction you’re asked to sign is labeled vaguely (e.g., “Approve” with no clear token/amount).
• New or unknown token contracts with no audit, no verified source code, or no community history.
• Social links, Discord invites, or Telegram groups pressuring you to “connect wallet” and act now.
• Contracts that require many permissions at once (transferFrom + setApprovalForAll + operator roles).

How to Protect Yourself

1. Limit Approvals — Don’t Approve Forever
   When possible, approve only the exact token amount required. Avoid “infinite” approvals. If a dApp insists on infinite allowance, pause and verify.
   
   
2. Verify Contract Code and Source
   Check the contract on block explorers (Etherscan, BscScan, etc.) for verified source code and trustworthy contract creators. Look for audits and community discussion.
   
   
3. Use Revoke/Allowance Tools Regularly
   Use reputable tools to inspect and revoke token allowances you no longer need. Revoke permissions for dApps you no longer use.
   
   
4. Prefer Hardware Wallets & Confirmation Screens
   Hardware wallets require you to confirm transaction details on the device screen. Confirm the exact method being called and the addresses involved.
   
   
5. Use Read-Only Tools First
   Before connecting and approving, use read-only views (e.g., view-only DEX interfaces or contract read functions) to check contract behaviour without signing.
   
   
6. Limit Exposure via Separate Wallets
   Use dedicated wallets for interacting with DeFi or NFT sites. Keep long-term holdings in a different cold/hardware wallet that you never connect to random dApps.
   
   
7. Check Community & Audit Signals
   Look for audits from reputable firms, active developer accounts, and community reporting. Absence of these signals is a red flag.
   
   
8. Use Multisigs for Large Funds
   For large pooled funds, use multisignature wallets so a single malicious approval or single compromised key cannot move everything.
   
   
9. Double check the dApp URL, especially if using a web search
   Double check the URL of the dApp and make sure it’s the correct one for the website you’re visiting. Any URL discrepancy is a major red flag. Sponsored links on Google can also be a major risk since Google doesn’t check the sponsor.

Steps To Take If You Think You’ve Been Approved To A Malicious Contract

• Revoke the allowance immediately using a trusted allowance-revoke tool.
• Move unsecured funds to a new wallet (if possible) that hasn’t been connected to risky dApps.
• Report the scam to the platform where you found the dApp and to community channels.
• Record transaction hashes and contract addresses for possible law-enforcement or exchange investigations.

Key Takeaways

• Smart contract scams often rely on careless approvals, cloned dApps, and hidden token logic.
• Never grant infinite approvals unless you fully trust and verify the contract.
• Use hardware wallets, revoke unused allowances, and keep DeFi activity to disposable wallets when possible.