Do your own research
The decentralized vision of the internet, brings forth a plethora of innovative projects and platforms, from decentralized finance (DeFi) to non-fungible tokens (NFTs). As with all nascent technologies, while the opportunities are vast, they come hand-in-hand with risks. This guide seeks to offer you a comprehensive map to navigate the complex landscape, ensuring you’re armed with the tools to conduct your own research and due diligence effectively.
Understanding the basics
Before diving into specific projects, it’s vital to grasp the fundamental concepts of onchain.
Blockchain: At its core, a blockchain is a decentralized ledger. This means that instead of a single entity controlling the data, multiple participants maintain it. This decentralization ensures data integrity and security.
Smart Contracts: These are self-executing contracts with the agreement directly written into code. They automatically enact and verify the terms of a contract, reducing the need for intermediaries.
Decentralized Applications (Dapps): Unlike traditional apps, dapps run on a blockchain, ensuring they’re not controlled by a single entity. This has implications for censorship resistance and openness.
Coins vs. Tokens: While both represent a unit of value, coins are native to their own blockchain (like Bitcoin), while tokens are built on another blockchain (like ERC-20 tokens on Ethereum or an L2 like Base).
Start with the project’s documentation
A project’s whitepaper or official documentation serves as its blueprint. Here, you should delve deep into:
Purpose: Beyond the problem the project aims to solve, understand the why behind it. Is the mission driven by genuine utility or mere market hype?
Technology: How technically sound is the solution? Do they have a unique proposition, or are they rehashing existing technologies?
Roadmap: Beyond just milestones, a roadmap can give insights into the project’s ambition, scalability, and long-term vision.
Use Cases: A project’s real-world application is a testament to its utility. Assess how practical and sustainable these use cases are and whether they can achieve mass adoption.
Analyzing the team and advisors
Behind every successful project is a robust and dedicated team. When evaluating:
Background: A LinkedIn profile can only reveal so much. Dive into interviews, articles, and past ventures to gauge their expertise and commitment.
Track Record: Past successes (or failures) can be indicative, but also look for adaptability and resilience, vital traits in the ever-evolving onchain landscape.
Advisors: While a notable advisory board can lend credibility, understand their level of involvement. Are they actively engaged or merely a name on the website?
Reviewing the tokenomics
A project’s tokenomics can determine its sustainability and economic health.
Utility: Beyond its purpose, how integral is the token to the ecosystem? Does it incentivize good behavior, or can the project function without it?
Distribution: Centralized token distribution can be a red flag. Ensure that tokens are fairly distributed, with mechanisms to prevent excessive accumulation.
Inflation and Deflation: Understanding how tokens are minted, burned, or staked can give insights into the project’s economic model and long-term viability.
Checking the code: Audits and open source
Onchain thrives on transparency and trust.
Open Source: An open-source code is open to scrutiny, fostering trust and collaboration. Platforms like GitHub can provide insights into code quality and activity.
Audits: While audits from reputed firms are a positive sign, delve into the findings. Were vulnerabilities addressed? Were there recurrent issues?
Updates: Regular updates can indicate an active development team. However, constant, unnecessary changes can be a sign of directionlessness.
Community sentiment and engagement
A project’s community can be its strongest asset.
Communities: While platforms like Reddit or Discord can be rife with speculation, they also offer raw, unfiltered opinions. Look for balanced, constructive discussions.
Social Media: Beyond just numbers, gauge the quality of interactions on platforms like Twitter, Discord, or Telegram.
Feedback Loop: An engaged team that actively seeks and acts on feedback is a sign of a project committed to growth and its community.
Evaluating market dynamics and competition
Understanding a project’s market positioning is crucial.
Competitors: Every project has competitors. What’s essential is the differentiation. What does this project offer that others don’t?
Market Size: While niche projects can offer unique solutions, ensure there’s enough market demand to sustain growth.
Trends: Being trendy can offer short-term gains, but for long-term viability, ensure the project has a sustainable model that isn’t merely riding the hype wave.
TLDR
Equip yourself with the tools of research and skepticism. Dive deep, question everything, and always be open to learning.
