Throughout the past few years, crypto has experienced many ups and downs. While adoption has gained ground, firstly with bitcoin and later on with projects such as ethereum, there have been some remarkably unsuccessful events. Many remember when the once largest crypto exchange, Mt. Gox, suspended trading and filed bankruptcy back in 2014, in which hundreds of thousands of BTC disappeared, or the many hacks leading to over $12 billion stolen over the past 10 years (2011 – 2021).
The recent LUNA collapse is just the icing on the cake for many on top of security attacks, DeFi protocol exploits and fraudulent schemes that have been hitting the crypto industry for the past two years. Can it be avoided?
The DYOR secret
Do your own research (DYOR) is a common term advised by people to avoid any of the aforementioned issues. On the other hand, it’s not always clear what it implies, and many investors get trapped in scams due to the lack of proper preparation before investing. For this reason, having clear checkpoints on how to research a project is a must for every investor.
A team is not only a group of people who gather to create a project, but also a union of talents, expertise and skills. The first thing you should do while researching is to check whether the team is doxxed (known for their true identities), has relevant experience in the field and if there are any personal achievements for the team members. Usually, this info can be found on the project’s website or whitepaper, however, sometimes it might be useful to check team members’ LinkedIn profiles and social media.
Backers and investors
VCs and funds investing in projects during the initial phases give further comfort to potential investors since they have already done their prior due diligence. If some backers and investors seem unknown, it’s easy to get all the required information using Crunchbase, where you can find their info, their investments, rounds they’ve invested in and even better — other projects and companies they’ve backed.
Nevertheless, it is important to remark this is just an additional check and it does not represent a bullet-proof system to invest in. VCs also make unfruitful investments.
Tokenomics and how to read them
One of the most difficult points is due diligence since it requires quite a deep understanding of the token’s nature, the mechanics of market capitalization, token supply, allocation and distribution models.
When the project starts making its first steps, it usually gets listed on project data aggregators such as Coingecko or Coinmarketcap, where users can usually find most of the tokenomics information they need. If the project is in the IDO/IEO stage, this info will be published on their official website or pitch decks.
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In case the project is established and running, it will most likely be listed on multiple exchanges. The investor might be interested in buying tokens directly from the market, which is more of trading rather than investing.
Trading is not an easy mission, and even if you know the first rule of any investor (buy low and sell high), understanding where the low is might be challenging at first. Here is where the power of reputed trading communities could come in handy.
There is a variety of trading groups out there that should also be given the same due diligence when researching. They can provide users with buy signals, technical analysis and trading setups to help professional traders know where and when to execute trades.
Roadmap and its implementation
If a project does not have a detailed roadmap, this could serve as a huge red flag. While researching a project, the project must present clearly important milestones, when they should be achieved and what has been done. This information should include minimum viable product (MVP), prototypes or beta versions, partnerships, collaborations and news or updates.
Many people outside the digital world underestimate the power of media and marketing in a project’s business strategy. In reality, according to Pew Research Center’s study conducted in 2021, 41% of Americans confirmed they have noticed that the media’s influence is growing while being asked to assess the media’s role in the country.
Social media platforms like Twitter, Telegram, Discord, Reddit, Medium and the cryptocurrency forum Bitcointalk are places where anyone can find traces of a project they are researching and check what users say about it.
Next, it is quite important to see how the team interacts with the community itself. Do they willingly answer questions and explain the project details, and are they open to feedback?
A great example of this is AMA events, which are usually online streaming events in which the project’s team answers questions from the community. An example of a popular host on Twitter and Telegram is CCC.io, which invites crypto projects as well as exchange representatives from a variety of leading companies in the crypto space.
Another example of a place to find great AMAs about NFT projects is Crypto.com NFT’s Twitter Spaces, which hosts various projects for AMAs launched on their marketplace. These AMAs provide valuable insights about projects and the team.
Crypto must be the best way for people to understand that they are responsible for their own actions and nobody else is. Prior to investing in crypto assets, the golden DYOR rule can save you a fortune. However, we all know that every rule has its exception — the same goes for crypto investments.
Even when it seems some projects check all the boxes mentioned above, they can still fail. Why? Sometimes, even after performing the best due diligence and being sure that you’re making the right move, there is still room for error.
Crypto markets are still a “wild west,” and nobody can actually know how things will turn out. For that reason, don’t forget the most important rules of all that every investor should keep in mind: never put all of your eggs in one basket, and never invest more than you’re actually ready to lose.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Tomer Warschauer Nuni is CMO @Kryptomon, a serial entrepreneur and investor focused on the innovative blockchain and NFT gaming industry.
This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.