Bear markets are usually a pretty good time to tell which projects will live or die. In the past few months, we’ve pretty much witnessed the sudden crash of Terra, Celsius, and Three Arrows Capital. Aside from these ventures, lesser-known projects have also come and gone. And with the market going down, so does our mood. When you choose to hop on the crypto bandwagon, you’re pretty much signing up for an extremely unstable rollercoaster ride – will it go up? Down? Or upside down?
To navigate such a volatile environment, it’s always nice to have a few tricks up your sleeve – to identify out which items in the fridge might be rotten. There are a couple of indicators that may help you identify the difference between a good crypto project and a bad one. Since the bear market’s already here, some of the really bad crypto projects are already gone – but who knows how many more are waiting for their death sentence?
Without further ado, these are the top 5 crypto commandments on how to identify a good crypto project.
1. The community says it all
There’s always a flood of projects in the crypto space, even more so in the past year. But time has revealed that one of the biggest indicators of a good crypto project is its community. How engaged is the crypto community with the project’s platform? How much confidence do they have in its future? Why do they show such confidence?
A pretty easy way to gauge a community’s sentiment towards a project is to take a look at the project’s Discord channel, Twitter page, or GitHub (for the tech geeks only). Not only does it show how engaged participants are with the project, but you can also identify how much the founders and people backing the project engage with their community. It shows clear intentions of transparency and communication from those who created and built the project, which is key towards achieving decentralization and transparency.
2. Made for the real world
Good ideas are always plenty – but the fine execution only comes if you have things to back up your idea. Good projects will usually put in the time and effort to build up juicy use cases and partnerships to A) show how their project can actually be applied to scale the crypto world and B) show that the project has sufficient resources and backing for reliable execution of their roadmaps.
Take a moment to actually read their whitepaper and identify whether it’s just a pretty piece of paper or if it provides solid insight into the project’s mechanism, use cases, and partnerships. It’ll be a pretty good reflection of whether the founders took the time to build the foundation of their project to support it during execution.
3. New project, who dis?
This isn’t a must, but it’s always helpful to identify and know a bit about the background of the founders of a project. What experiences do they have in crypto? Have they launched other similar projects? Do they have a bad history with launching other projects?
Most projects will have anonymous founders at launch, but some, like Moonbirds, reveal the identity of their founders pretty early on. The Moonbirds NFT collection skyrocketed back in April, and many suspect its popularity was largely thanks to the people behind it – Kevin Rose and Justin Mezzell, who co-founded Proof Collective, a group of 1000 NFT collectors hosting the likes of Gary Vaynerchuk, Mike Winkelmann and more. Both co-founders have extensive prior experience in the crypto and blockchain world, heightening the perceived credibility and trustworthiness of the entire project.
Founder backgrounds are more of a supporting element to a good project – there are tons of crypto projects with founders who don’t have extensive backgrounds but have made beautiful creations. Vice versa, there are founders who have long histories in the world of crypto, yet have faced multiple downfalls in the past. Take Jeff Huang for example – a crypto entrepreneur who has experience launching 10 different projects – met with failure each time. It was recently discovered he allegedly embezzled 22000 ETH from Formosa Financial, a treasury management service company, back in 2018. So always take precaution – not all fancy and length backgrounds automatically mean good.
4. Without tokenomics, there is no gin – just tonic.
A memoir for the fallen – the OHM token is an exemplary reason as to why you should read about a project’s tokenomics. It will say a lot about whether the project will be able to sustain and scale moving forward.
The OHM token was launched by Olympus DAO, a DeFi protocol with its core functionality being staking. The protocol offered users a staking scheme with 7000% APY through the OHM token mints, which faced considerable backlash for being too unsustainable and possibly fraudulent.
This is another reminder to always identify and read the fineprint with precaution. If it sounds too good to be true, you’re probably right. Achieving 7000% APY isn’t feasible for any project, especially when you factor in scalability. Think about it – a project promising 7000% staking APY for a million users… probably really hard.
5. All hail the roadmap
And last but definitely not least – identify the product, service, and the roadmap of a project. This is arguably the most crucial part of a good crypto project. If you know how to crack the code, look at the project’s GitHub. Read through it, see whether the technology behind the project is promising and whether there’s transparency in what they’re sharing with the public.
For a crypto project to be sustainable, it needs to show that it plans to offer utility and real-world benefits in the long run for its community. Newer projects are starting to expand outside of just crypto – they’re looking to expand their projects further into the Web3 space to include DeFi, NFTs, GameFi and who knows what in a few years. The vision to expand beyond just one product usually says a lot about the vision of the founders and the dedication they have when innovating in the Web3 space.
But always remember: don’t put all your eggs in one basket. All these points matter equally, hence the Do Your Own Research (DYOR) motto of crypto. If you don’t take the time to properly identify and look through multiple aspects of a project, it’ll directly reflect in your investments. So DYOR and enjoy the ride.