Here, we lay out a detailed beginners guide on how to research your coins to position yourself to catch that next moonshot.
“I am a great believer in luck, and I find the harder I work, the more I have of it” – Thomas Jefferson
Why Do Research?
The best investor is one who is best equipped for success. Having a solid understanding of the projects you invest in can help you be a smarter and happier investor.
As the number of blockchains continues to grow, the tokens and coins population will proliferate as well. Thousands of tokens and coins exist across the growing number of blockchains. It is increasingly important to assess and evaluate coins and projects for the best investments.
For cryptocurrencies, there are a growing number of resources to begin a search into the industry. Like any industry, there are dos and don’ts and effective strategies to help evaluate a project and its accompanying token or coin.
The world of Decentralized Finance (DeFi) is coming to a point where the survival of quality, impacting projects is tantamount to growth in the industry. For the industry to truly grow, there will need to be liquidity and backing behind the projects that are truly building the platforms and tools that deserve recognition and boost.
That isn’t to say that meme coins and sh*tcoins won’t come and again. The ephemeral token is ever apparent, and glowing moonshot is even harder to find. Proper research and diligence can help take the average investor from one who merely throws money at projects to one who chooses projects wisely to mitigate losses and boost the chances of catching that moonshot.
Basic and Fundamentals
There are key fundamentals to understanding how to begin doing research in crypto. Every crypto user should use these basics for investigating and researching new cryptos.
Familiarity with terms and various tools is a solid first step. Users should be comfortable understanding how a crypto wallet works, be versed in public and private keys protection and familiarize themselves with the interaction between different blockchains. Not all chains are equal, and understanding how to bridge between them is crucial.
You will find many familiar terms from economics and other sciences, but not all terms are interchangeable. DeFi has broken into new territory. Much of the same tools and strategies of traditional investing are well suited for success in DeFi.
Developing a familiarity with different tools and decentralized applications (dApps) is also essential. Within cryptocurrency and DeFi there are a growing number of tools and dApps that can make life easier, automated, and more straightforward. New dApps across Web 3.0 are where the information lies. New websites like centralized and decentralized exchanges, automated market makers, plus portfolio trackers have transformed the industry and the tools used by investors. Many platforms allow customizable accounts and interfaces to help make the DeFi experience more accessible and individual.
A site like CoinMarketCap is essential to any crypto investor. The site is far from perfect when providing information about all coins, but users can get the information required to assess thousands of tokens and coins accurately. The site also allows account creation and customization in critical ways to provide the information that a user wants and needs.
Below, we will look at some of the information to assess when researching a new crypto or token.
Project and People
Not all crypto projects are created equal. There is no standard release for any project, but several key metrics are important to note and keep in mind.
Check the Website
Every project will have a website, and the interface should be a good first litmus test for the project. Be on alert if the website does not appear legitimate or shows any signs of being phishy. Is there bad grammar or awkward formatting? Do the links work? If this is an older project, how up-to-date is the website? The appearance and feel of the website are always one of the first tests for a project.
Check the Whitepaper
Behind every token and coin are the developers and team. It is customary for cryptocurrency projects to release a whitepaper and or roadmap to dispel the plans and forecast the progress of a project.
The whitepaper should introduce you to the tokenomics of the coin and the features of the project upon release. Road maps help to understand what a crypto project wants to achieve over time. Projects can sometimes have unrealistic roadmaps and projections. Beware of smaller roadmaps that seem unreachable and lofty ambitious goals in short periods.
Remember to double-check what the goal of the project is. Does this project purport to solve or create something? Basically: what is the use case of the coin? Are there other projects that do the same thing? Is this project one of the first or late to the game?
Often meme-coins will hit for random and untenable reasons, but solid projects will be those with an edge on the industry and something new to provide. There is a myriad of shit and dog coins, but the true standouts can be hard to find. Beware of speculation around what a project can o as fear, uncertainty, and doubt (FUD) can be pervasive.
Check the Team
There are faces behind every cryptocurrency. When reviewing the background information of a coin, it is essential to get to know the team and developers behind the project. Check them on LinkedIn. Find their professional profile or website. Have they worked on any other coins or cryptos? Maybe other technology ventures? What happened to those projects– were they hacked or exploited? It is also not uncommon for crypto developers to leap from project to project and essentially abandon projects for entirely new ones under new names.
If the project has a decentralized team, try to figure out how many members there are. Many tokens and coins will have this information readily available on sites like GitHub, which provides open-source code to review projects. From there, it is possible to see who edits and interacts with the code of the protocol.
It’s also relevant to check partnerships and any entity that may have backed the token or coin. Associations with other prominent projects or backing from institutional investors is often a good sign to know that a crypto will be legitimate. Usually, the more partnerships a group has, the better. Partnerships and such are typically displayed on a project’s website and can be announced through social media. Which brings us to…
Check the Social Media
Maybe you found this token through Twitter? Perhaps you heard it through a friend. However, you came across your new token or coin of interest, always check the coin’s social media.
It is increasingly vital in decentralized finance (DeFi) to check beyond the website and verify projects in the public sphere. How many Twitter followes does it have? Cryptocurrencies are not often judged by the more ‘popular’ social media like Facebook, Instagram, or Whatapp. Get familiar with other social media like Discord, Telegram, and blog sites like Medium. What does the Discord Channel look like? Or the Telegram? Are these channels well maintained?
The community activity of a token’s social media groups is a solid test for the legitimacy of a project. Again, be aware, and watch out for hype and hysteria. Developers are known to give out gifts to users who shill their respective tokens or coins. Just because a coin may have an immense following doesn’t mean it is warranted.
Lastly, beware of fake social media account and accounts loaded with bot followers. Social Media is notorious for being rampant with fictitious accounts intended to trick users. These trick accounts are often populated with tons of bot followers who even interact with the accounts. Beware of odd language and anything suspicious in social media. Inactivity and incoherence are a sheer sign of something fishy.
Check for Audits
Smart contracts pose risk to all DeFi projects. Many projects seek out to receive audits from leading firms such as CertiK and PeckShield. These firms boast expertise in smart contract proficiency and offer services to check the code.
Projects with audits have increased security as they are scanned for some of the most prevalent exploits. Unfortunately this does not guarantee anything. Smart contracts are still subject to exploits regardless of the auditing firm. A solid audit protects against a large pool of exploits and displays a projects onus on security — yet it is not the holy grail
Project and Metrics
Reviewing the tokenomics of a coin is essential. You don’t need to have an economics background to understand some of the basic tools to check the health and investment potential of a token.
Common sites to begin checking token stats are CoinMarketCap, CoinGecko, DappRadar, and many other sites. These sites will all have all sorts of metrics and stats. Most will have the same key information available for review.
Review the Market Cap
Always check the market capitalization as it is a good indicator of the health of a token. The market cap alone tells you how much money is invested into the token or coin. The large-cap tokens or coins are usually well followed and considered safer investments. They are still subject to much volatility, but they often maintain a steady price.
Small market caps can be vulnerable to pump and dumps, and large caps can be harder to get those moonshot gains. Be aware of massive volatility with smaller cap coins and liquidation potential. And if you have taken a step deeper and begun farming and interacting with liquidity pools, be aware of liquidation from impermanent loss.
It is important to relate all the above information to how many token holders are for the coin. A small-cap coin with only a few holders will be vulnerable to even more volatility; the percentage weight of an individual holder is critical as well.
Review Token Supply
Another key to tokenomics is the token supply. The amount of the token will be a huge factor in dictating its value on the market.
Bitcoin famously has a limited supply of 22 Million, while Ethereum recently went deflationary. Other tokens like CAKE from PancakeSwap have an infinite supply with regular burns. In short: there can be many different manners of token supplies.
The circulating supply of a cryptocurrency can increase or decrease over time. The distribution of the circulating supply is important to recognize who controls the supply of the tokens. Is the distribution centralized? Do the developers hold most of the tokens? Is there supply more decentralized and split up? All of these things are well and good to consider when evaluating.
Where is the token?
It is also vital to know where the token is available for purchase. The exchanges where a token is listed are equivalent to a partnership. The larger, more prominent exchanges usually have more stringent requirements for listing and can even help boost the price of a token. A listing can be seen as an honorable gesture.
Another factor to consider is whether the token will be supported on a hardware wallet. Hardware wallets are essential to safety and security. Wallets like Ledger and Trezor support hundreds of smaller cap tokens and coins, plus are even compatible with several different blockchains.
There have already been several token metrics and project details to review. However, there still remain some final reminders to check out.
A classic economic assessment like the SWOT Method (Strengths, Weaknesses, Opportunities, and Threats) is a good way to analyze new metrics. Many traditional strategies from traditional investing can be adequately applied to crypto but must be implemented with a more critical eye in the less secure space.
There are few, if any guides, out there to investing in crypto. The industry moves so fast that it’s tough for a conventional publisher to keep up with the innovation. CoinGecko released two books in 2020 on ‘How to DeFi.’ This could be an excellent first read for anyone curious to read before going into crypto head first.
Ultimately, none of this stuff is easy. DeFi and crypto is still a nascent industry with enormous volatility and vulnerability. Bug bounty programs have begun to take hold across the industry, but safety and security always fall back on the user.
There’s seldom any customer support to call when you lose your seed phrase or if you send your tokens to the wrong address. Liquidations and exploits are common; nearly every DeFi veteran has a rug story or has botched a transaction. No one is perfect, and that’s the beauty of this new industry. Not every investment will hit, but the more educated you are, the more likely you are to be in a position to hit it big.
Source : solana.news