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How to evaluate crypto projects?

As crypto projects keep on rising in number. Bad projects also keep on rising, however, sometimes these can be mistaken for good investments. Investors must do some reality checks like team composition, token economics, investors, vision and product stage. 

If you are a crypto investor or want to start investing, the first step is to understand how to evaluate coins and tokens. These coins and tokens represent crypto projects that serve some utility. We need to evaluate the associated utility of the project which may turn into value for us. But selecting a good crypto project may still feel like a mammoth task. As it should, analyzing crypto projects is a work of skill. In the crypto industries’ short existence we have seen multiple scams. We may come across some shiny project and would want to pledge our money on it. However, Since every shiny thing is not gold, we should take our sweet time to weed out the red flags. 

Key factors to evaluate crypto projects

Now, traditionally there are two types of investing methods in crypto: technical and fundamental investing. Technical investing is termed as phoney and inaccurate, however, to many investors it stays relevant in the short term. Our focus will be on the latter which works by evaluating the foundations and healthy of the investment. Since, unlike stock markets, crypto projects do not have financial statements to analyse the investment. Therefore, we will focus on more specific aspects of crypto projects that will help us evaluate a project. 

Vision 

One of the important crucial aspects to evaluate a project is its long term vision. It facilitates the project to put across their goals and execution plan. As industry-standard crypto projects use roadmaps to discuss the timeline for achieving its goals.

But, pay more attention to what the vision itself. Think about its feasibility in the real world and understand the size of your return. As a rule of thumb, you can think about the utility provided by the project if its vision is achieved. 

As far as the roadmap goes, it’s easy for a project team to make a bogus roadmap and never deliver. It will be harder for non-technical people to asset the too-good-to-be-real roadmap. However, one can always check if the roadmap highlights the adoption. Adoption is what connects vision to reality. Additionally, do not discard a project for missing a deadline as long as they are communicative about the mistakes. Transparent communication is the key to a good project. 

Funding, advisors, and partners

As a rule of thumb, crypto projects with good investors, advisors and partners do well. Check for this information on their website and look for seasoned investors from the VC world to evaluate. You can easily piggy bank on this information. Not just that, this exercise will give you information about the maturity and professionalism of the project. If the project has been partnering with quality names in the industry or is funded by elite VC firms, it is usually a good sign. A few elite VC firms are mentioned below:

  1. Pantera Capital
  2. ConsenSys Labs
  3. Coinbase Ventures
  4. Ethereum Foundation
  5. Gitcoin Grants
  6. PolyChain Capital

Team composition 

If the team is composed of a massive marketing engine but a small development team, it is usually a red flag. Moreover, you can check the team composition and see the qualifications of the team members to evaluate crypto projects. A good project will have a healthy mix of engineering, marketing, design and HR individuals. 

Project stage

You may also check the stage of the development of the project. Does the project have a proof of concept or a Minimum Viable Product? Do they have the technology to support their vision? Do they have beta testers? Having beta testers is a positive sign as it shows that other people see value in a project. Check for how big the project community is? Check for all these red flags otherwise you may find yourself investing in a project that boosts features like inter scalability and interoperability but never delivers. 

Token Economics 

This is a vital aspect of a crypto project for its long term survival. Now, Tokenomics is just the study of how the given cryptocurrency works within the broader ecosystem. This will give you an understanding of the token distribution and network incentives to users. Crypto tokens are seen as speculative instruments. Projects hire good economists to design a complex mechanism to help the token serve its purpose. These mechanisms include the proofing algorithm, staking, controlling the supply by burning coins. 

Check for projects with these strong fundamentals. This will help you not fool a lump of coal for gold. Stay safe and do your own research before investing.

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