Evaluating Crypto Projects

Introduction 

With thousands of cryptocurrencies in existence, evaluating which projects are worth investing in can be overwhelming. Each crypto project is unique, and careful evaluation is key to distinguishing between legitimate, high-potential projects and those that may be poorly managed or even scams. By understanding what to look for—such as the team behind the project, the tokenomics, and the community—you can make more informed decisions. 

What to Research Before Investing 

The Team 

The people behind a project are often one of the most important indicators of its potential. When evaluating a crypto project: 

• Experience and Background 
  Look at the team members' backgrounds. Do they have experience in blockchain technology, software development, finance or the relevant field for the project? Has each team member got a public profile which shows their past work history and experience? A strong team with credible experience in the industry is more likely to deliver on its promises. 
• Transparency 
  Are the team members open with their community on what they’re building, spending treasury funds on and building? Transparent teams add credibility and trust to a project, whereas failing to can sometimes indicate a lack of accountability and ‘leading on’ investors. 

Tokenomics 

Tokenomics refers to the economic aspects of a project’s cryptocurrency, such as supply, distribution and incentives. Key points to consider: 

• Total Supply 
  Is there a cap on the total supply? Is the token inflationary or deflationary, meaning does the total number of tokens go up or go down over time? This is important as inflationary tokens means more dilution, whereas a deflationary token like ETH means that supply is going down in the long-term. Bitcoin is in the middle ground – where it has a fixed supply and cannot go up or down. The only nuance is that more Bitcoin supply does come in everyday via Mining, however, there will never be more than 21 million bitcoins in existence. 
• Distribution 
  Who holds the tokens, and how are they distributed? A project where the majority of tokens are held by the team or a few individuals (often referred to as "whales") could be risky, as they could dump their tokens, leading to a price crash. 
• Utility 
  What purpose does the token serve? Tokens with a clear use case, such as being used to pay transaction fees (e.g., Ethereum), governance rights or are actually used in the project’s product or service tend to have an organic demand for it. 
• Vesting 
  Most crypto projects are funded by either public or private investors (VCs) who support the project early in return for tokens before the token has been launched. It’s important to go through tokenomic documentation and find out what the vesting schedule is for each project as it has a direct effect on the supply of the token that enters the market. 

Whitepaper 

The whitepaper is the foundational document of a crypto project, outlining its goals, technology, use cases and plans. When evaluating the whitepaper: 

• Clarity of Vision 
  Does the whitepaper clearly explain the problem the project aims to solve and how it intends to solve it? If the whitepaper is filled with technical jargon or unrealistic promises without clear plans, that’s a red flag. 
• Technology 
  Look for technical details that explain how the project works. A project that relies on vague explanations without proper technical details may lack substance. 

Roadmap 

The roadmap provides a timeline of the project's planned developments and milestones. It gives you insight into how realistic the team's goals are: 

• Clear Milestones 
  Does the project have a timeline with achievable milestones? A well-laid-out roadmap shows a thought-out plan for growth and development. 
• Progress Updates 
  Is the team delivering on its promises? Checking past milestones and whether the team has successfully met its goals on time can help you assess their reliability and capability. 

Community and Partnerships 

The community plays a significant role in the success of a crypto project. A strong, engaged community can help a project grow and gain traction. 

Is the project’s community active on platforms like Discord, Reddit or Twitter? An active, dedicated community is often a positive indicator of interest, support and belief in the project. 

Partnerships with other established companies in the space can add a level of credibility, depending on what the partnership entails. It also increases the brand awareness of the project as they’re tapping into other communities and may add additional resources for development.  

Use Case and Market Fit 

Consider the actual problem the project aims to solve: 

• Use Case
  One way to test whether a product has found its Product Market Fit and has a genuine use case is to take a deep dive into the project’s users, the total value locked (TVL), revenue and other factors that pertain to its use.
  
  Often, if these metrics have been trending up – it means that the proof is in the pudding, and there is a genuine use case for the company. 

• Competition
  What other projects are solving the same problem, and how does this one stand out? The project should have a competitive advantage, whether in technology, partnerships, or team expertise.
  
  Another good question to ask is, if there was a competitor that had a similar vision but is no longer around, what was the reason they failed? Most of the time, you can freely ask staff or founders questions on their community channels if you have any concerns or questions. 

Entry Points 

Deciding when to enter a position is just as important as choosing which projects to invest in. 

Market Conditions 

Entering during a bear market or accumulation phase might offer lower prices compared to buying during a bull market’s peak. 

Technical Analysis 

Simple tools like support levels (price points where assets tend to not fall below) and resistance levels (where prices struggle to rise above) can help you identify favourable entry points. You don’t have to be a chart expert, but having an idea of where the price stands can help you make better investment decisions. 

Potential Red Flags 

• Tokenomics 
  Ensuring a project has favourable tokenomics is essential for retail investors. There have been several practices of shady-tokenomics by companies in the past which heavily favour private investors, and do not give a fair chance for people buying on the live secondary markets (retail users). Bad practices can include issuing a low circulating supply, with a high number of tokens unlocked in a short time – which generally lowers the price and increases sell pressure. 
• Excessive Hype and Unrealistic Promises 
  If a project is mainly built on hype with promises of guaranteed returns, be cautious. Crypto investments always carry risk and guarantees are unrealistic. 
• Lack of Communication or Transparency 
  A good project keeps its community updated through regular posts, progress reports or even AMA (Ask Me Anything) sessions. Silence from a project, especially during difficult times, can be a warning sign. 

To Sum It Up 

Look for projects with a strong community, experienced team, a clear use case and are transparent. Identifying potential entry points can improve your investment strategy, and watching for red flags helps you avoid scams or poorly managed projects. Doing thorough research and evaluating each of these factors is key to finding the projects that have the potential to succeed.