Crypto is the Wild West of the finance world: it’s full of scams and rug pulls. But there are plenty of quality projects out there too – ones that could evolve into the next market leaders. You just need to find them. And to do that, you’ll need to be able to accurately assess projects – so here are five ways to separate the diamonds from the dust.
Just like any other business venture, a crypto project is unlikely to succeed without a brilliant team behind it. That means exceptional leadership from experienced founders, partners, and developers.
Make sure you do a thorough background check on any project’s key personnel. You can gauge qualifications, career highlights, and reputations on LinkedIn, and then verify your findings with further online research.
2. Use case
It’s pretty easy to create a crypto token. But making one that’s actually useful is a different story. Always assess the purpose of a token – if it’s useful, it’s likely to increase in value as the project grows.
Here are some examples of useful tokens:
- The FTT token: it reduces your trading costs on the FTX platform.
- The LINK token: smart contract operators pay for Chainlink data validation with it.
3. 🤩 Crypto security never look so good
When it comes to your digital investments, safety comes first. Of course, it’s always a bonus when safety comes wrapped in a pretty little package.
A project’s roadmap isn’t just a blueprint for success: it’s also a measure of it. See, roadmaps set out what projects plan to achieve, and by when. If a project has achieved its previous goals, it could be more likely to reach future ones.
A project’s community is one of its greatest assets: you’re more likely to hang on to your tokens through hard times if you believe in the project’s future, after all.
You can gauge the strength of a project’s community by following its Discord, Telegram, Reddit, and Twitter. Before investing in any project, use these platforms to ask about it – if the members are helpful and welcoming, that’s usually a good sign.
“Tokenomics” is the economics of a project’s token. This can be quite complex, but there are a few simple ways to get a good overview.
First, check the token’s supply before you look at its price. A project with a trillion tokens floating around is likely to have a lower price than one with a billion – all else equal.
Next, look at how the tokens were launched in the first place. A “fair launch” is usually a good thing: that’s when a project’s community owned all the tokens from the get-go, with no pre-allocated tokens for outside investors or founders.
Other launches are more like share offerings, where projects raise startup capital from private investors with a pre-allocation of tokens for the founders and team. If that’s the case, make sure the early investors have a “vesting schedule” that stops them from cashing out early and dumping the price. And on that note, watch out if the top five holders own more than 20%: you don’t want the token supply to be too highly concentrated.
Finally, check out the project’s token supply schedule. Some – like bitcoin – have a “disinflationary” one, where the number of new tokens minted decreases over time. Others opt for a more inflationary approach to incentivize miners and stakers by rewarding them with more new tokens. And while that can help projects gain traction in the early stages, be wary of schedules that dilute the token’s value too quickly.
- Crypto is the Wild West of the finance world, but there are still plenty of good projects out there.
- Look at the team behind a project and usefulness of its token, as well as its roadmap and community.
- The economics of a project’s token are important too, and there are a few simple ways you can assess them.
This guide was produced in partnership with Ledger.