A step-by-step framework for evaluating crypto projects
When it comes to cryptocurrencies, you need to consider a few key factors before deciding whether to invest. Whether you are just getting in on the ground floor of new crypto projects or looking to expand your portfolio, having an evaluation framework available for crypto projects is helpful.
This article will explain a step-by-step framework to help you evaluate various crypto projects.
How do you evaluate a crypto project?
During the analysis of a crypto project, it is important to examine the various aspects of the project in order to make an informed investment decision. You should generally refrain from making impulsive decisions based on emotions, as this can lead to financial loss.
Consider the following aspects instead:
These are just some of the questions you need to ask during your cryptocurrency evaluation. We will discuss them in more detail throughout this guide, which will provide you with a framework for evaluating crypto projects.
By the end, you should have a pretty good sense of what to look for — and how to make an informed investment decision. Remember that there is a lot of speculation in the crypto world. So do your research before you start investing.
How do I research a new crypto project?
There are a couple of platforms that can help you find high-quality crypto projects to invest in, such as Binance Launchpad, OK Jumpstart, and Gate.io Startup. These are all initial exchange offering (IEO) platforms, which give their users opportunities to invest in startup blockchain projects.
There are also initial coin offerings (ICOs), which are fundraising mechanisms for crypto projects. However, it is important to note that ICOs are generally considered riskier than IEOs. This is because ICOs are hosted on the website of a cryptocurrency project, making them a more fertile ground for fraudsters and scammers.
IEOs, on the other hand, are launched on exchange platforms like the ones we mentioned earlier. They are generally more secure because most startups that submit their projects to these platforms go through a review process before they are allowed to launch the token sale.
However, even when going through an IEO platform, you should still conduct independent research. Doing so will help you determine whether a project is the right investment opportunity for you and whether it is something you can invest in long-term.
How to evaluate a blockchain project?
In general, here is what you should consider when looking at the main aspects of a crypto project:
The project’s vision
When evaluating a crypto project, it is important to ensure that it has a strong and achievable vision. In crypto, there is such a thing as “vaporware”, which often refers to projects with all the bells and whistles – but unlikely to get off the ground. When evaluating a crypto project, be wary of those that seem too cool and promise too much without having a solid plan or foundation to back it up.
Industry visionaries come up with many groundbreaking project ideas, but only a few are ever feasible or practical enough to be implemented.
Background and team
Another important thing to consider is the team behind the project. This is important because ultimately it is those working on a project who will make it successful (or not). When looking at the team, consider things like:
- The team members’ experience;
- Their history and level of expertise in the crypto space; and
- How close-knit the team is.
The factors above will give you some insight into whether a team is strong and likely to make the project successful.
The quality of the white paper
The white paper is a document that usually outlines everything you need to know about the project, including the vision, the problem it aims to solve, the solution, the tokenomics, and more.
Related: What is Tokenomics? A Beginner’s Guide to Cryptocurrency Supply and Demand
A good white paper will be well written and easy to understand without being too technical. It should also be clear about the problem the project aims to solve and how the solution will work.
If a white paper is vague or uses too many obscure terms you don’t understand, it may not be worth your time (and money) to invest in that project. If you don’t have the time or patience to go through several white papers, you can also check out the projects’ small papers. These are shortened versions of white papers, but are just as informative.
Potential market and use cases
When evaluating a project, it is also important to assess the potential market and whether there is a need for the solution the project offers. For example, if a project tries to solve a problem that doesn’t exist or has already been solved by another project, the project is unlikely to make a dent in the crypto space.
It is also important to think about potential use cases for a project. For example, if a project is trying to solve a problem that concerns only a small group of people, the market for that project will be very limited.
Tokenomics
Tokenomics refers to the economic model of the project and how the token will be used in the ecosystem. For example, if a token is only used as a means of payment, its value is likely to fluctuate with the market.
However, if the token is used to power a decentralized application (DApp), the tokenomics will be more complex, and the value will be more stable. It is important to understand the tokenomics of a project before investing as it can give you some insight into the potential value of the token.
Potential for growth
Growth potential refers to the probability that the project will increase in value over time. For example, if a project has a strong team, a good roadmap and a solid tokenomics model, it is likely that the project will grow in value over time. It is important to research a project thoroughly before investing, as many factors can affect its growth potential.
The product
The product refers to the actual solution the project offers. Again, it is important to ensure that the product is actually needed and that it solves a real problem. Take Ethereum (ETH), for example, which was built based on the need for a platform that could support smart contracts and expand the possibilities of blockchain technology.
Solana (SOL), on the other hand, is a blockchain that uses proof-of-history, a unique consensus mechanism. Built on the premise that an “internal clock” can greatly benefit transaction speed, Solana succeeded in becoming one of the top blockchains when it comes to transactions per second.
Community traction
Community traction refers to the level of interest and commitment the project has created in the community. A good way to gauge your community’s traction is by looking at the number of social media followers, blog subscribers and forum posts. The more active the community is, the more likely the project will succeed.
It is also important to consider the quality of the community, as opposed to just the quantity. For example, a project with a large number of social media followers but very few active users is likely not as strong as a project with a smaller number of social media followers but an active user base.
Market value
Market cap is the total value of all tokens that have been mined. It is a good way to measure the overall size of a project. In the case of non-mined crypto, market cap can also refer to the total value of a company’s shares. It’s a good indicator of asset stability, given that crypto can be volatile. In general, cryptos with larger market caps tend to be more stable than those with smaller market caps.
The platform
A project’s platform refers to the underlying technology on which the project is built. For example, Ethereum is built on the Ethereum blockchain, while BNB is built on the BNB Smart Chain (BSC). Each platform has its own advantages and disadvantages, and it is important to research a project thoroughly before investing. For example, Ethereum is the most popular platform for building DApps, while BSC is designed to offer high performance and low fees.
Transparency
Transparency refers to the level of information the team makes available to the community. A transparent team will regularly communicate with the community and provide updates on the project’s progress.
An opaque team, on the other hand, will be secretive and withhold information from the community. It is important to invest in projects that are transparent, as it is a good sign that the team is confident in the project and willing to be open about its progress. In addition, it will keep you safe from various scams such as carpet covers.
Related: Crypto Rug: What is a Rug in Crypto and 6 Ways to Spot It
The road map
The roadmap should outline a project’s business plan and give you some insight into how the team plans to execute its vision. A good roadmap will be well thought out and realistic, with clear milestones that the team plans to achieve. It should also be updated regularly to reflect the current status. If a roadmap is outdated or unrealistic, it is likely that the project will not be successful.
