Before making a genuinely informed investment choice, it is crucial to comprehend the project’s goal, tokenomics, white paper, use cases, roadmap, and more. These factors are more pronounced for investments in cryptocurrency because it is largely unregulated, with many bad actors involved. Investors have no one or government to hold accountable when things go south.
An evaluation framework for crypto projects is helpful to have on hand whether you’re trying to extend your portfolio or are just starting to become involved in new crypto initiatives. This post will outline a step-by-step structure to help you assess different cryptocurrency initiatives for success.
How Do You Evaluate A Crypto Project?
The first step in evaluating any project is to ask fundamental questions. Consider all of a project’s components to avoid making hasty judgments motivated by emotions, and mere guesses.
Ask these questions:
- What problem is the project trying to solve?
- How does the project plan to solve the problems?
- Who is behind the project?
- Do they have the necessary experience and expertise to address the problem efficiently?
- Is the technology behind the project sound and secure?
Above are just some of the questions you need to ask during your evaluation, which we further discuss in more depth below. By the end, you will know how to “DYOR” — do your own research, what to look out for in a crypto project and how to make financial decisions you would not regret.
How Do You Research a New Crypto project?
You may find news of high-quality cryptocurrency projects to invest in on a few different sites, including Binance Launchpad, Gate.io, Startup, OK Jumpstart, and more. They are initial exchange offering (IEO) platforms that give their customers the chance to invest in fledgling blockchain startups.
An initial coin offer (ICO), another option, serves as a means of generating money for new cryptocurrency ventures. But note that ICOs are riskier than IEOs because the projects make themselves the offer on their website. IEOs, on the other hand, are introduced to the public by reputable exchanges, as mentioned above, after a thorough screening procedure.
Nonetheless, you should still carry out your research even while using an IEO platform. Doing this lets you decide whether a project is an excellent long-term investment for you and a good investment opportunity.
How to Evaluate A Blockchain Project
For the new and existing projects you are considering, take into account the following while examining them:
The Vision of the Project
It’s critical to check if a crypto project has a compelling and realistic concept while analyzing it. Vaporware is a term used to describe ventures in the cryptocurrency space that have all the bells and whistles but are unlikely to take off. When assessing a cryptocurrency project, be cautious of those that look overly cool, making extravagant promises without having a solid plan or basis to support them.
Only a select handful of the ground-breaking project ideas that industry visionaries come up with are practical or valuable enough to materialize.
Background and Team
The project’s personnel is another essential factor to take into account since, in the end, the people working on a project are what will determine its success or otherwise. Take into account the following when examining the team:
- The expertise of the team members
- Their track record and degree of competence in the crypto space
- The team’s level of cohesion
Take, for instance, Cardano, the issuer of the ADA token. The blockchain was launched by Charles Hoskinson, one of the co-founders of the Ethereum network, the second largest blockchain project. One may immediately trust the ADA ecosystem knowing the team leader has a successful project to his name.
In sum, from the elements listed above, you can tell whether a team is capable and likely to complete the project successfully.
Quality of the White Paper
A Whitepaper is a document that captures the project’s goal, the issue it seeks to address, the proposed solution, tokenomics, and other equally important details.
An excellent white paper will be well-written, understandable, and not overly technical. Additionally, it must be obvious what issue the project seeks to address and how the proposed solutions will work out.
Investing your time and money in a white paper might not be worthwhile if it is unclear or includes too much technical jargon you don’t understand. You may alternatively read through the project’s litepapers if you don’t have the time or patience to go through several white sheets. Although litepapers are condensed versions of white papers, they are still quite educational.
To get any project’s whitepaper, check Whitepaper.io, the leading database of cryptocurrency whitepapers.
Potential Market and Use cases
It’s crucial to think about a project’s prospective market and whether there is a need for the answer, it is giving. For instance, it’s doubtful that a project will impact the crypto space if it attempts to tackle an issue that doesn’t exist or an existing project isn’t already solving. Each project’s collective aim is to create efficiency to replace or complement existing structures.
For example, XRapid, a product of the Ripple blockchain, eliminates the delays in global payments while dramatically lowering their cost, thus making cross-border payments instant and inexpensive.
Consideration of a project’s prospective use cases is also vital. The market for a project will be pretty tiny, for instance, if it aims to address an issue that only affects a small number of individuals.
A Project’s Tokenomics
Tokenomics describes the project’s business plan and the token’s function inside the ecosystem. For instance, if a coin is primarily for payment purposes, its value would probably change along with the market.
Likewise, if the project’s token will power decentralized applications (dApps), then the tokenomics will be more elaborate, and its value will be more stable and reliable. Before investing, be sure to understand a project’s tokenomics since it can provide some insight into the possible value of the token.
Potential for Growth
Growth potential is the possibility that a project may gain value over time based on its future outlook.
What is the scheme projecting in the long term? What do their five years and ten years growth plans say?
See this exemplified in the case of Ethereum, which launched on the proof-of-work consensus but is transitioning to the more efficient proof-of-stake mechanism.
The Product
The project’s real solution is the product it offers. Once more, it’s crucial to confirm that the product is genuinely required and that it addresses a genuine need. As an illustration, consider the BNB Chain, which came in response to the demand for a cost-friendly platform that could enable smart contracts and increase the functionality of blockchain technology.
On the other side, Solana (SOL) came up with the idea that an internal clock may significantly increase transaction speed, and it has become one of the best blockchains in terms of transactions per second.
Community Traction
The amount of interest and involvement a project has sparked in its community is its community traction. You can determine the community’s popularity by counting the number of forum posts, blog subscribers, and social media followers. The likelihood of the project’s success increases with the level of community engagement.
Take into account the quality of the community, not only its size. For instance, a project with many social media followers but few engaged people is probably not as powerful as one with fewer followers but more engaged users.
Market Capitalization
The sum value of all a project’s tokens in circulation is known as its market capitalization or market share. This cap is a good indicator of asset stability as cryptos with larger market caps tend to be more stable than those with smaller market caps.
Transparency
The amount of information the team makes available to its community tells their level of transparency. A transparent team will keep its community informed of project developments regularly.
On the other side, a team that lacks transparency would be secretive and keep some facts from its community. Investing in transparent initiatives is crucial since it shows that the team is committed to the endeavor and eager to be upfront about its development. Furthermore, it will protect you against frauds as rug pulls.
The Roadmap
Like tokenomics, a project’s road map is its business plan describing how the team intends to achieve its goal. Clearly defined milestones that the team plans to reach are characteristics of a good roadmap, which requires routine updates to capture the reality of things. A project is unlikely to succeed if the roadmap is out-of-date or unrealistic.
Final Thoughts
While reacting to the news that a crypto exchange was fighting for survival, the CEO of the Binance exchange, Changpeng Zhao, said, “Choose exchanges wisely. Avoid exchanges that need to raise money to survive.” A Twitter user challenged his opinion, asking what assurance he had that his exchange would not bite the dust. CEO Zhao responded that “Nothing is risk-free.”
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
