When you start investing in crypto projects, you'll hear the term 'Do Your Own Research' quite often. Everyone tells that, but no one tells how. :(
Say no more! In this blog, we'll take a look at how you can research a crypto project from a retail investor's point of view, along with some platforms and tools that can help you with it. So let's get straight into it...
1. The Mission
Look into what type of real world or on-chain problem the project is trying to solve. Then look at the statistics on where the project currently stands in terms of solving that particular problem.
Was the project founded 5 years back and is still struggling to provide some real world value? Was the project founded last year and already has plenty of use cases? How decentralized it is/aims to be? Try to investigate around the fundamentals of a project and if you believe that the project is on the right path, your gut might wanna hold that.
The biggest strength of any blockchain network lies in its community. Community of not just investors, but also nodes, validators, developers and stakeholders—basically anyone who can impact the project in a considerable amount.
Dig-in deeper to check how big and supportive the community is. You can take a look at their Telegram/Slack/Discord channels, the buzz on their social media and YouTube, what type of investors are backing and why they believe in the project; evolution never happens individually but with the community. Credibility and reputation plays a major role in driving the project's growth.
A whitepaper is the most essential, professionally-crafted document that gives the investors technical insights, explains the project's concepts, working methodology, token fundamentals and an overview of the long-term vision or the roadmap.
For a successful ICO, measurable value proposition, and building the trust, a properly documented whitepaper is an absolute necessity for any project.
As an obvious example, here's the official Bitcoin whitepaper, which in today's standard, might not be the most comprehensive or buzzworthy, but was well ahead of its time in the year it got published.
The underlying technology behind a project is one of the most important factors to not just determine how a project stands against its competitors, but also how futureproof and scalable it is.
For example, Ethereum has plenty of use cases and offers features such as Smart Contracts, DApps, EVM, DAOs and stablecoins. Any project with such extensive use cases and a supportive network is pretty much unlikely to fail in the future, and more likely to add more utility and build traction over time (not a financial advise).
A roadmap provides a clear or a nearly-clear summary of the future vision of the project in terms of prototyping and development, code releases, listings, audits, partnerships and other major events that affects the development or price action.
You can find the roadmap on the project's website and updates around the same on their social media. It's the responsibility of project maintainers to timely update on the roadmap and deliver as per the same. So if they're not doing that, it's a major red flag.
As an example, here's the ETH2.0 roadmap on ethereum.org.
6. Tokenomics and Price Action
Past price action of a cryptocurrency can play a major role in determining how it performs in the future. Make sure to look at the price charts of the project, compare it with its ICO, and do a basic sentiment analysis.
Tokenomics (token+economics) deals with the qualities around supply and demand of the token, its utility and the governance model. It is driven by some of the key factors like the maximum supply of the token, current circulating supply, use cases, ownership incentives, future scarcity, etc. These questions might help understanding the tokenomics of a project:
- What is the current ranking of the project in the market? The farther it goes from the top 100, the riskier it gets.
- How are the coins being created, and will there be any limit to the maximum that can ever exist?
- What's the current circulating supply? The more scarce, the better.
- How does the overall token distribution looks like in the wallets; Is there any influential individual or institutional investor holding some? That depicts trust—a green flag. Are a few wallet addresses collectively holding too much value from the supply? That depicts peak risk—a red flag.
- Are the use cases scalable? That might drive the demand of the token in the future.
- Additionally, try to find some information that indicates if a large number of coins are lost, burned, or somehow unusable.
Two of the best websites to research about tokenomics, price action and market data are CoinMarketCap and CoinGecko.
7. The Team
One of the most overlooked aspects of investing in a crypto project is to explore the team members behind the project. What are their qualifications? Which projects have they contributed to, earlier? Do they have a proven track record and established trust factor in the community? Do they publicly interact in the group chat or do AMAs?
You can often find project founders or engineers hanging out in their Telegram/Discord communities. Feel free to have a chat with them to see what they have to say!
Another major factor that drives the accessibility of a crypto is which major exchanges it is listed on. If it's listed on most of the leading exchanges like Binance, Coinbase and FTX, chances are that it has gained enough trust and credibility to be available for the majority of people in the market.
Apart from centralized exchanges, it's another plus if the token is available on most DEX (Decentralized Exchange) platforms and aggregators, for example Uniswap, 1inch, PancakeSwap, etc. Mostly, a cryptocurrency project is listed on a DEX platform before it gets listed on centralized exchanges. If the team provides any commitment for a token's listing in the future, that's a huge plus too.
9. Past Commitment and Efficiency
Look into the how the project has been delivering on its promises in the past. Is the team properly communicating about the ongoing development? Is there an on-time delivery of the features and upgrades? How has been the team in terms of collaborating with other projects? Is the team working on educating the investors and developers working on building solutions on top of the project?
The more meaningful efforts there are by the team, the better. Public Relations and Developer Relations play a vital role in creating an impact.
10. Risk Factor
Every investor has a different risk appetite. But no one ever wants to get into a project that's so risky that it might not even be there in the market after a year from now.
Some basic questions can tell a lot about the risk factor of a project. How is the overall volatility of the price action? Is it driven too much by the sentiments (or Elon's hype 👀)? Are the investors willing to hold it for the long term? Is there a maximum supply of a trillion tokens? Are there significantly better alternatives already available in the market? There can be dozens of such questions. It's always better to stay away from the projects that don't provide any meaningful contribution to the industry or are merely driven by hype.
That being said, happy hunting for your next crypto investment!
Disclaimer: This blog is meant for educational purposes only and nothing from this blog should be taken as a financial advice. Please DYOR before investing.
Top comments (1)
Beginners always need a lot of knowledge. I am always looking for interesting articles. I read this last time and I recommend that beginners read it as well.