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How to Evaluate a Crypto Project

By August 9, 20216 minute read

This is written by an external blogger, the views and opinions expressed within the post belong solely to the author

Everyone tells you to do your own research, but no one tells you how to. 

A lot of new people have joined the crypto community after this year’s incredible bull-run, but a large fraction of those people aren’t ready to do their own research, and thus depend on influencers and media to make their investment decisions, thereby introducing centralized entities in the system that can be corrupted. This goes against the principles of decentralization and personal responsibility that the crypto community strongly stands for. 

For most people, because of the sheer scale of information out there, it can also be hard to differentiate between what’s real, what’s fake, and what’s just straight-up hopium peddling. In this article, I would try to explain what metrics to look for and what they might mean for a crypto-based project to help you Do Your Own Research. 

Blockchain and crypto are new, experimental technologies, but their scope is incredibly vast, so evaluating a project is usually an entire process, which we’d have a look at in steps. 

Step 1 – Checking for life

There are thousands of cryptocurrencies currently active and in circulation, but there are likely even more that have popped up and then died. The first thing you need to do when you come across an interesting project is go to a website like CoinMarketCap or CoinGecko and find out if there’s still trading activity going on with that coin. These websites can also give you more information about the crypto, like if the trading activity and volumes are genuine. If you come across a new project, be sure to check if they’ve been listed on at least a few reputable exchanges that have a significant amount of trading volume. 

If the coin is only listed on a decentralized exchange like Uniswap or Pancakeswap, proceed with extreme caution. Anyone can list their token on a DEX and there are no selection criteria or requirements. While this certainly does not write off a project completely, it’s a red flag. 

Once you’ve established that the project in question has an economic pulse, it’s time to understand what it is and how it works. 

Step 2 – Preliminary research

When it comes to starting out research about a particular project, Youtube is a good place to start. However, the problem with crypto Youtube is that it’s filled with low-quality content with poor technical research. Because of this, it’s necessary to filter out and be very selective of the channels you watch. If a channel tells you to buy a particular project’s token, take it as a red flag. Crypto Youtube channels should be for informational purposes only. 

Beyond Youtube videos, it’s important to do some technical research yourself. There are tools to make this as easy for you as possible. One such extremely powerful tool is Messari. Each crypto asset has its own with detailed information based on a variety of metrics. The page you, as a beginner, need to focus on the most is the ‘Profile’ section which generally includes a thoroughly comprehensive breakdown including the crypto’s history, key people, technology, governance, etc. Other tools like Glassnode help people with a set of detailed, on-chain data like the number of transactions a blockchain has in a day, among many other metrics that can tell us a lot about the usability and traction for that particular crypto. 

Other resources like Binance Research take a more technical approach to analyze a crypto project. For ICOs specifically, ICO Drops are a great tool in order to get most of the relevant information about the project and the ICO. All of these tools are very popular and thus have to maintain very high standards of quality of information. However, that does result in a tradeoff between quality and speed, as it takes a long time to compile high-quality information. Be sure to jot down any unanswered questions that might arise from your research.

Step 3 – The sources

Now that you have done your technical research, it is time to head back to Youtube. To get a good grasp on the cryptocurrency you’re interested in, you’d need to hear about it from the people who made it themselves. 

Since we know from our previously used tools who the most important people in a project are, our next task would be to find their latest interviews on Youtube. I find that personal interviews offer a treasure trove of information that’s impossible to find anywhere else, and helps explain some of the technical parts of the project that could be hard to grasp by just reading their documentation. Chances are, these videos would answer most of the questions you might have jotted down doing your technical research. If you can find an official Youtube channel of the project you’re researching, it would likely simplify the technicals for you to a large extent. 

Once you understand how the project works, its token economics, the people behind it, and the use cases for the project, it’s important to judge how much the native token is required to achieve that use case. If the token is only a minor addition to the project, then even if they do achieve their use case, the demand, and thus the price of the token, would not rise proportionally.

Step 4 – Fact checking

Now that you’ve hammered out most of the kinks in your understanding of the crypto project in question, it’s time to double-check if the information you collected is sufficient and still relevant. 

The most up-to-date source for any crypto project is, expectedly, their own website. However, most information on the websites of most crypto projects is either jargon or meaningless words about some noble cause they claim to champion. Thus, if you don’t know what you’re looking for, you’re going to waste a lot of time poking around the website. As a responsible crypto researcher, the part you’re looking for is the documentation section of the website. If you’re lucky, you’d have a friendly search bar where you can just enter key terms like ‘Tokenomics’, ‘Inflation’, ‘ICO’, or any other topic that you might need clarification on. But if not, you will have to search through the documents manually. 

A lot of times, since they’re aimed mostly at computer programmers, the documentation you find will have a few lines of computer code every now and then. As someone who doesn’t know any computer languages, the lines of code can be intimidating and demotivate you from further reading. It’s very important to resist the intimidation as most of that information is also available in plain, easy-to-understand English, usually at or near the beginning of the document. 
If there are more questions you have, try and find the blockchain explorer of that cryptocurrency. If it’s an ERC20 based token, Etherscan is a good place. If it’s a Binance Smart Chain-based token, then BSCscan is the place to go. Here, you can easily see what wallets hold the largest percentage of tokens in a project and other information about the distribution of tokens in easy-to-understand charts. Be on the lookout for any wallet that holds a large percentage of the tokens (unless they’re the project’s smart contract), because if one wallet holds too many tokens, they can sell on the market and crash the token whenever they want.

Step 5 – The future

The entire purpose of this research is to evaluate if you should buy a particular project’s token, usually in hopes of future profit. If all your questions are answered and concerns lifted after your research, it’s time to check what the project has planned in store for the future. 

To do that, you need to have a look at three things. The project’s roadmap to see what their plan is, the project’s blog or Medium page to see what their past plans were and if they have been successful at following through with them, and the news about the project on websites like CoinDesk or Decrypt to see what the public opinion about the project is. 

No crypto research can be 100% accurate, of course, but if you’re competing against people who are only speculating, and you arm yourself with this research strategy, you’re far ahead of the curve. If you’re satisfied with all of the data points you have gathered, then voila! You have evaluated a crypto project thoroughly and are equipped to make an informed decision.

About Guest Blogger (Parv)

Parv is a blockchain and cryptocurrency researcher, investor, and entrepreneur. He is the founder of Estate Protocol, a marketplace that would have real estate-backed NFTs. When he isn’t occupied with crypto, he enjoys reading, traveling the world, and meeting new people. You can check out his LinkedIn profile here
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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