As a beginner getting started with crypto investment or an experienced investor looking to increase his portfolio, you must be careful of scams in the crypto world. You can trip for rug-pulled crypto projects and lose your money. But you can avoid this by having a crypto project evaluation scheme that helps determine a viable crypto project.
This article examines factors you should consider when evaluating crypto projects you want to invest in.
Evaluating a Crypto Project
Making an informed investment decision in the crypto world can be tricky. Every project has an exciting promise that the team markets to make it look distinctive. And these marketing schemes can force you to make an investment decision based on emotions. Meanwhile, this can cause you financial loss. But you should ask some important questions to avoid such a huge loss.
- What kind of problem does the project solve?
- How would the project solve that problem?
- Who are the team behind that project? Are they experienced or have the right skills to tackle the problem efficiently?
- Does the project have secure and sound technology?
The questions above are some questions you should seek answers to while conducting your crypto project evaluation. They are the fundamental questions that will set the tone of your research right. As a result, you will have a framework to evaluate any crypto project you want to invest in. The remaining part of this article discusses them and breaks them to serve as a guide.
As soon as you read this piece, you will know how to avoid doubts in the crypto world. And with this information, you can make sound investment decisions. But importantly, conduct your detailed research before investing.
Researching a New Crypto Project
Binance Launchpad, Gate.io, and some other platforms are excellent places to seek top-tier cryptocurrency projects you can invest in. They are initial exchange offering (IEO) platforms that present you with investment opportunities for blockchain projects just starting.
On the other hand, there are other fundraising schemes crypto projects can leverage. One of these schemes is an initial coin offering (ICO). However, it is noteworthy that ICOs carry more risks than IEOs because the teams host them on crypto websites that expose them to illicit activities like fraud or scams.
But IEOs are more secure than ICOs. And that results from the fact that they launch on the platforms mentioned earlier. And this security is due to the scrutiny and vetting process each project undergoes before those platforms allow them to launch token sales. Regardless, you must do independent research while cutting across blockchain projects on an IEO platform.
Independent research helps you understand if the project is right for you to invest in and if it is a long-term game you want to play.
How to Evaluate a Blockchain Project? 12 Components to Factor In
The brief discourse above gives you an insight into why you need to evaluate and research a blockchain or crypto project before you invest in it. This section examines essential factors to consider while conducting your evaluation process. Let’s dig into it.
- Project Background and the Team
The first thing that you want to know is the team behind any blockchain or crypto project. This is a critical factor because they are the ones that will drive the success of the project. So, look into the things listed below while examining the team:
- Each member’s experience
- The kind of crypto projects they’ve worked on and their skill levels in the decentralized ecosystem, and
- How the team carries each member along to make them contribute to the success of the project individually
These three things will provide you with convincing information to determine the strength of the team and the project’s likelihood of success.
- Growth Potential
This means the possibility of a crypto project having an increased value with time. As an investor, you want to invest in a project that will increase in value with time. This brings the potential of having increased revenue from your investment. For this to be obvious, you must thoroughly research a project before investing in it. This will expose factors that will contribute to its growth.
- Project’s Vision
A quick disclaimer here! Stay away from projects with many promises that look cool without any concrete foundation to drive them to success. These projects have the whole publicity but won’t kick off because they lack a solid plan. As an investor, ensure a crypto project has a strong, convincingly achievable vision. This means that they should be projects that are appropriately practical for implementation.
- Whitepaper Quality
A whitepaper is a marketing document that outlines every detail of a blockchain or crypto project. It contains information about the project, its vision, the problem it will solve, solutions, and tokenomics, amongst others. One way to recognize a good whitepaper is its simplicity. It contains all the information in simple language, and you can easily understand every detail.
But when a whitepaper has bogus words that seem more technical beyond comprehension, stay away from such a project. You will only waste your time and money. On the other hand, you can go through projects’ litepapers if whitepapers are too much and time-consuming for you. Litepapers are summarized versions of whitepapers but contain the right information you need.
- The Product
The preferred solution from a blockchain or crypto project is the solution it brings to the decentralized ecosystem. Ensure that the product tackles a real problem and presents a practical solution. An instance is Ethereum (ETH), which was created to support smart contracts while maximizing blockchain technology capabilities.
- Potential Market and Use Cases
Assessing the potential market for a project will let you understand if the crypto ecosystem needs the solution. This will reveal itself when a project struggles to solve a non-existing problem or tries solving a problem tackled by another project. As a result, such a product won’t make a stride in the crypto space and will die a natural death.
On the other hand, the use cases of a project determine the kind of market that is readily available for it. When a blockchain solves a widespread problem, chances are that you have a large market open to maximizing its solution. But a project with a small target group has a limited market.
- Market Capitalization
The thumb rule states that cryptocurrencies with large market capitalizations have more stability than cryptos with smaller market capitalizations. This is because it indicates the stability of the asset since crypto will continue to be volatile. The total value of all the mined tokens is known as market capitalization. And for unmined crypto, the market cap is the whole shares of the company. We can use this to determine the total project size.
The operational, economic model a project will leverage in the ecosystem is regarded as tokenomics. Understanding how a token works and how it will be used within the space is imperative. That will give you insight into the token value and its stability against market fluctuation. A token used as a payment method only will fluctuate with the market. But a token that powers a decentralized application (DApp) will have a stable value.
- The Roadmap
A roadmap is a document that previews the project plan to achieve its business goals. It explains how the team will achieve its vision. It has reasonably clear milestones that are realistic. A good roadmap will be frequently updated to document the project’s progress. An outdated and unrealistic roadmap only points to an unsuccessful project.
- The Platform
A platform is the underlying blockchain technology that supports the projects. Every platform has its benefits and limitations, but you must research the project before you invest. For instance, the Ethereum blockchain supports ETH, and BNB Smart Chain (BSC) supports Binance Coin (BNB). Likewise, knowing the specifics of each platform serves a great deal while researching investment options. For instance, Ethereum is popularly known for DApps development BSC offers optimized performance and low fees.
- Community Traction
Community traction is the amount of interest and engagement a project receives from its community. The proactivity of a community determines the chances of success. One way to determine good community traction is by looking at the numbers of blog subscribers, forum posts, and social media followers. However, community quality supersedes quantity. This can also determine the success of a project.
The project’s transparency gears toward how the team makes information readily available in the community. Regular communication by the team and constant updates about the project’s progress make the team appear more transparent than another team withholds information. A transparent project builds confidence in the project and protects you from possible scams.
What’s the Best Crypto Project?
The only way to determine the best crypto project is to assess a project and ensure that it fulfills every factor listed above. When a project—like AABB Gold Token—does that, be assured that you are investing in a project with a high potential success rate. This gives you the confidence to invest in a crypto project while making an informed investment decision.