Automatic Red Flags
6 disqualifiers that immediately eliminate an opportunity from consideration, regardless of yield or reputation. Apply these across assets, protocols, and blockchains.
Philosophy
These aren't negotiable. A single red flag is grounds for rejection.
1. Evasive Communication
- Avoiding direct questions about operations
- Giving inconsistent answers across channels
- Deflecting when asked about specific mechanics
Why it matters: Evasion signals deeper problems they're hiding.
2. Unclear Admin Rights
- Unverified multisig configurations
- Unknown or anonymous signers
- EOA (externally owned account) admin keys
- Hidden upgrade powers or backdoors
Why it matters: Unclear control means unclear risk. See our governance assessment framework.
3. Commingled Assets
- Mixing user funds with treasury
- No clear separation between operational and user capital
Why it matters: Makes solvency impossible to verify. Our financial audit catches this early.
4. Untraceable Fund Flows
- Cannot follow reserves on-chain
- Collateral movements are opaque
- No clear audit trail for deposits/withdrawals
Why it matters: If we can't trace it, we can't assess it.
5. Refusal to Address Issues
- Dismissing legitimate security concerns
- Not acknowledging known vulnerabilities
- Defensive response to audit findings
Why it matters: Risk is normal; refusing to acknowledge it is not.
6. No Timelocks on Critical Functions
- Instant upgrades possible
- No delay on parameter changes
- Emergency functions without safeguards
Why it matters: Instant changes mean instant rug potential. Always verify via smart contract security.
Foundational governance, security, and economic design evaluation →
Deep-dive into tokens, stablecoins, LSTs, and LRTs evaluation →
Lending platforms, DEXs, yield vaults, and derivatives protocols analysis →
L1s, L2s, and infrastructure layer security and decentralization analysis →
Apply the Full Framework
Red flags are just the beginning. Ensure your opportunities meet every standard of the Clearstar DD process.
View Complete DD Framework