Analyzing crypto projects
Currently, the crypto market is in a downward trend, being developed in a poorly favorable macroeconomic context in which many investors opt for traditional low-risk assets and higher market capitalization.However, given the current market situation, this could be the ideal time to investigate and select projects that may have exponential growth when the market recovers. After the fall of the crypto market since the peak in November 2021, investment opportunities were generated in undervalued projects with very interesting proposals.
There are projects supported by solid bases and equipment that provide solutions to real problems, while others seek to raise capital quickly without having a clear vision, which often results in speculative or even fraudulent projects. However, an advantage of this ecosystem is that information is often easily available and in addition to some data can be verified through Blockchain, which allows us to make more informed decisions.
Instead of focusing on technical analysis, which focuses on price fluctuations and market sentiment, we will focus on the foundations of projects for medium and long investments deadline. Although this article is not an exhaustive manual or intended to be an investment recommendation, the objective is to serve as a starting point to investigate and analyze different projects.
Return 5 aspects I consider it necessary to analyze from a project to make better investment decisions: token utility, token economy, business idea, project team and adoption and community.
Token Utility
One of the most relevant points to start analyzing a project is token, as it will be our investment instrument. A token is a digital asset within Blockchain that can be programmable through smart contracts. From the point of view of investment would be the equivalent of buying shares from a company, with the difference that this digital asset has a key role in the project and interactions within the ecosystem.So, it is important to evaluate whether token or currency is useful, for this will give you real value to the asset and your demand will not be merely speculative. A common way in which tokens can be useful is through project governance. Those who ate the largest amount of tokens have decision-making power over the project protocol, for example, the distribution of tariffs for transactions, budget allocation and the launch of new features on the platform. These votes are held at Blockchain in a decentralized, safe and transparent way for all participants.
Another example is the use of tokens to access benefits within the platform, exclusive material, pre-sales of new projects or NFTs releases. You can also choose to block the tokens (or put them on staking) liquidity to the platform and receiving interest in change. Tokens can also be used as a means of payment or for validating transactions within the ecosystem. In the Ethereum network, for example, the ETH token is required to perform transactions, interact with intelligent contracts and various applications.
These are just a few examples that could give you real utility token and maintain long-term demand. The utility that is expected of the token will depend on the type of project and the needs to solve the problem that has been raised.
Token Economy (or tokenomics)
Another important point to take into account is the economic aspects of the project. Each project has scheduled rules in Blockchain that can be verified and determine the behavior of tokens. It is crucial to evaluate, for example, whether token is inflationary or deflationary. If the project has an uncontrolled currency issue policy, it could greatly increase the offer and negatively impact the price. Instead, there are platforms that have token burning mechanisms, reducing circulating quantity and keeping the price more stable.It is also important to review the distribution of Tokens in the project, including the number of tokens in team ownership and developers, or how many are intended to fund research, development and marketing. In addition, it is necessary to know the time that initial investors have blocked the tokens (known as vesting), since the release of their tokens and the subsequent sale may have a negative impact on the price. All this information is transparent in Blockchain and can be found in White Paper or on the project website.
Business Idea
Following the project analysis, it is important to raise some key issues: What problem do you propose to solve the project? What is the use case you plan to develop? Is it really necessary to use Blockchain technology to solve or facilitate the solution of this problem? What is the size of the potential market and how do you plan to attract new users? How does this solution differ from other competitors in the ecosystem? It is important to ensure that the project has a clear vision and defined objectives.It is essential to pay attention to market and industry trends. Since these will be the projects that will probably attract more investors and have greater adoption during an upward market. For example, some projects focus on second-tier solutions (Layer 2) that seek to increase Ethereum scalability and reduce transaction costs, core industry issues. Themes related to Zero Knowledge Proof or Artificial Intelligence will also be trends to pay attention to the crypto space to evaluate investment opportunities.
On the other hand, projects must have a clear script. It is important to review whether they already have a code working and what is the degree of project advancement. By reviewing road map It is necessary to identify the release dates of the products and features of the platform. These steps can mark important changes in the asset price even before they are implemented.
Normally, the projects have a White Paper where all this information is found, including the business model and technical aspects of development. It is important to review White Paper to be able to view the investment horizon and have a clear input and output strategy.
Design Equipment
It is very common that in crypto projects the team is anonymous. Often for regulatory issues in the countries where they operate. That should raise an alert and take you to review in more detail certain aspects.A good team is that multidisciplinary team that combines not only people with knowledge in technology and developers, but also profiles with knowledge in finance, marketing and graphic design. If the solution involves regulatory issues, it is important that they have a project-dedicated law team. It is necessary to understand how they will address any legal or regulatory matter they may have. It is also good to count on the team with experienced industry advisors on which the product will be developed.
Partners with other companies can be a good way to complement the skills, experience or technology that does not have the team. Generally projects give public knowledge of these alliances and launches with exchanges. They also allow the company to position itself and is generally highly valued among investors. Alliances can be with companies outside the critpo ecosystem or within the same industry.
It is also important to have a company auditing the code and business rules programmed in the smart contract. Audits of companies recognized as OpenZeppelin or Certik decrease the risk of vulnerabilities in the code. In addition, they ensure that there are no malicious intentions of developers hidden in the code. A recognized team and a good audit does not guarantee a safe investment, but significantly reduces the risks of a fraud.
Adoption and community
A project can cover all aspects mentioned above and have products developed for real problems, but for good investment it is important to have community support to achieve a broad adoption.A good way to learn about project news and get involved with the community is through the official channels of Telegram, Discord and Twitter, as well as Reddit for more technical issues such as the level of activity and code collaboration. It is essential to participate in these communities to know the feeling of the market and avoid the confusion between legitimate support and euphoria. It is also possible to anticipate a negative effect on price by a disconform community with project results. The active presence of founders and community managers on social networks is also a key factor for the adoption and dissemination of the project.
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