If you're in crypto and are reading this… I'm almost 100% sure of one thing! You have bought some token(s) that lost you money. I have.... a lot. I felt stupid. Stupid. Helpless. Violated. And it sucks. Then I shook it off and went on a learning journey. In this article, I'm writing about how to do fundamental analysis to find quality crypto project like a pro. Fundamental Analysis... NOT Technical or Psychological Analysis. FA is an important part of DYOR - Do(ing) Your Own Research It is doing your due diligence to see the intrinsic value of a an asset. Here are my guarantees if you apply these principles: You will be more confident with analyzing crypto projects. You will find projects with much higher chances of succeeding You will be doing one of these three: Invest with more assurance Not Invest at all DYOR more ... like a pro. Let’s Go! Here are the thing to evaluate: THE TEAM Look for a team with a good founder and devs, they are the life of the project and can determine its exponential growth. I look for credible founders that have a lot to lose if their projects go under. Algorand (ALGO) project - founded by the famous MIT blockchain professor, Silvio Micali. Avalanche (AVAX) project - birthed at Cornell University. Cardano (ADA) project - founded by an Ethereum co-founder, Charles Hoskinson. Polkadot (DOT) project - also founded by an Ethereum co-founder, Gary Wood. While this is not so for other successful projects, a history or track records are a strong point to look for. THE COMMUNITY Network effect is about community Adoption is all community. Social Media presence is community. No community, no project. Dying community, dying project. Several other points below will prove this further. Read on. THE WHITE PAPER All valid projects on the blockchain should have an official document. This document explains what the project is about in a way people can understand. This is called The whitepaper. The purpose is for users to get know the important details about the project. Whitepapers will tell you: Who the project team are Where they hangout online - Twitter, Linkedin etc How to contact them (by default from where they hangout or their emails) What the tools and technologies being used are What the economics of the project tokens (tokenomics) are Which consensus models they are adopting What the project milestones to achieve are Who their partners are What the use cases are Read white papers. They will save you from feeling stupid. Stupid. Helpless. Violated ROADMAP OF THE PRODUCT Successful projects have one thing in common... Clarity! A clear vision. A clear mission. A clear roadmap. All of these make investors grow in confident in the project as they read the project articles, white paper or other documentation. Some of what you should expect in roadmaps include: Announcements of project features like smart contracts & staking Upcoming projects on the platform Strategic partnerships Events or seminars Apps or platform versions Improvement of the network (decentralization, scalability, security) A good sign of an active project is that they update their roadmaps regularly. THE SOURCE CODE As a general rule, if the source code is not made available to the public to look through, take it a red flag. If a blockchain project is available for public feedback, independent technical people can review the code. They can spot security flaws. They can check for quality. This builds confidence in the project. These are a few details that can be seen from open-source repositories: Activities of Developers Audits Technical Documentation and Transparency Smart Contracts The Risks and Opportunities THE USES CASES All coins, tokens or blockchain are created to solve a problem. The more widespread the problem, the better the likelihood for adoption. For instance, every DeFi project is based on some attributes of the blockchain. Trustlessness. Decentralization. Immutability. Speed. Security Consensus Trustless means I don't need to trust you or a middleman to transact with you Before now, we had to trust who we transacted with. If we couldn't, then we used a middleman we both trust - the financial institutions. They also had government approval. Their involvement solved a problem but created another. Extremely high fees. To many of us, it is more like profiteering. DeFi eliminates the need for middlemen in financial transactions. With that goes their high charges. So, uses cases let us know what problems the project will be solving and the likelihood of adoption. Coins and tokens/ cryptos are used for solving the problems of traditional financial transactions. They aid decentralized financial solutions. A crucial part of FA is to clearly understand the use of tokens/coins. Therefore, after reading the project’s official documentation, it is better to see the actual use of coins/tokens on DeFi platforms. In GameFi, the tokens and in-game assets are to be used in the game's ecosystem ...and may be cashed out. In most projects, governance tokens is... you guessed... it to be used for governance and decision making without a central controller. ADOPTION & NETWORK EFFECT More important than the technology or anything else in a blockchain/crypto project is its adoption. At the end of the day, the success of any blockchain depends on you and I. If we don't embrace and accept it, it won't succeed. This means a lot of marketing needs to be done. The effectiveness and the scalability of a blockchain project are limited by its adoption. This is where Ethereum stands out. It is arguably the most well marketed blockchain project. The adoption of a crypto project for instance, is measured by 4 major criteria: Number of blockchain addresses... of users The number of transaction daily... of users Average Daily Transaction Value... of users Number of UTXOs... of users UTXOs or Unspent Transaction Outputs are the amount of cryptos that remain after a crypto transaction. They are useable in a new transaction. The amount of digital currency authorized by one account to be spent by another. UXTOs are created by the consumption of an existing UTXO! It can only be spent if it includes the digital signature linked with the public key attached the last time it was spent. If your blockchain project is not recognized or accepted by retail investors or institutional investors, sorry, it will die! Whereas a shitty project with fantastic marketing will be widely adopted and see huge growth. The increasing number of people who adopt a project improve its value. This is called the network effect. So, when you do FA for a project, always consider the “network effect”... (In economics, it is also called the network externality or demand-side economies of scale) Along with the current level and potential of growth for coins/tokens. THE TOKENOMICS Tokenomics = TOKEN ecoNOMICS. The study of supply and demand behind the project tokens. When you study tokenomics, you will know more about the monetary policy behind projects. These are the questions I try to get answers to: What is the circulating supply? What is the total supply? What is the max supply? Do they have a burn mechanism to combat inflation? If not, what is the plan to do this? Is the token distribution/allocation fair? Does the project incentivize (in English "bribe") users with passive income? It's wise to study “Consensus Mechanisms”. Follow the project social media platforms. Turn on notifications for updates and news about the project. THE LEVEL OF DECENTRALIZATION The blockchain technologies yank out middlemen thanks to decentralization. Check how decentralized a project is, by considering these factors: The distribution of tokens The Number of nodes/full nodes involved in the consensus process The effect companies have on how the network is governed How much power developers of the projects have on the governance of the network The number of wallets vs the active addresses in the network Activities of whales Bitcoin is arguably the most decentralized network till date. All others have some level of centralization. So, DYOR properly before investment money in those projects to be safe. THE COMPETITION Blockchain projects aim to deliver decentralized solutions that are secure and scalable. You need to know how fierce the environment of the project is and who their competitors are. Are they direct or indirect competitors? Are the projects in the same industry? For instance, DeFi and Payment tokens are in the Finance Industry Metaverse and Gaming usually go together NFTs are all-rounders. Even oracles which are off chain but play important roles Smart Contract Platforms and Layer 2 Solutions are And Web3 will need file storage These categories have active projects. So, before you ape into the tokens of any project, DYOR with respect to the competition. THE TECHNOLOGY BEHIND IT This is mainly a Tech bro or babe thing. For a grasp of what happens at the back end of any blockchain project, look at the tools and tech behind it. Programming languages form part of the backbone of blockchain technology, libraries and frameworks, infrastructure, smart contracts, and dApps (decentralized applications) Here's a list: Programming languages like Rust and Solidity Blockchain Libraries and Frameworks like Truffle and Remix Frontend Technologies like Angular and React Monitoring and Testing Tools like Etherscan and other blockchain explorers The suite of tools used in projects can point to how they may be compatible with legacy systems later, for instance. SCALABILITY Scalability is about the volume, speed and cost of transaction on a blockchain. It is one of the trilemma of the blockchain. The other two are with decentralization and security. A scalable solution should have more transactions in less time and reasonable fees. So, when you're researching scalability, you know the 2 factors that matter: Throughput which is the volume or number of transactions per second Network Fees, the cost of transacting on the network Centralized or smaller projects have higher throughputs and/or lower fees. Don't also forget that the level of adoption of blockchain affects volume of transactions. SECURITY BTW, blockchain trilemma states that a blockchain cannot be secure, decentralized and fast all at the same time. Security is another factor here. If the blockchain you invest in is insecure, you lose. Or would you invest resources into a buggy, porous blockchain? Here's where being techie pays. Make sure to do following: Audit the source code yourself or have a "trusted" firm or team member do so. The number of external audits the project has had from reputable audit firms. Verify if the project has suffered any attack or hack before by DYOR into news or announcements on social media Check which exchanges the project’s tokens are listed on. If they are listed on trusted exchanges. A minimum level of security is required before being listed. REAL-TIME MARKET METRICS Check Coinmarketcap or for trading data and a feel of the market sentiment towards the coins/tokens: Coingecko The Market Cap The Daily, Weekly, Monthly, All-time Trading Volume The Maximum, Total and Circulating supply Moreover, you can use these metrics in estimating future price growth. ON-CHAIN METRICS You can analyze the activities of users on a blockchain. There are many on-chain metrics. Here are the common ones good for doing fundamental analysis Number of Wallets Active Addresses Liquidity Transaction Values & Fees Exchange Inflows and Outflows Trade Intensity You can't get these from candlesticks. is great for gathering these data. CryptoQuant THE EXCHANGES LISTING IT A quick way to save time doing fundamental analysis is to see if the coins/tokens are listed on the exchanges. Centralized Exchanges (CEXes) like CoinBase, Binance, KuCoin, or Kraken have strict terms to meet before they list any project. Generally, projects that have scaled through the filter of these exchanges, are fairly trustworthy it. If is it is listed on decentralized exchanges (DEXes) only, you have to do a lot more due diligence. GOVERNANCE Governance is a major concern in the blockchain ecosystem. Most projects need to be decentralized. But they will need new features to be created in future. So, what happens? Well, some mechanisms must be in place to make network governance easy. Make sure to check on governance policies before you want to invest in a project. The most popular model for managing updates on the networks is using “governance tokens.” The idea is to let the network users buy these tokens... Which gives voting powers depending on their holdings (maybe 1 vote for 1 token). This comes with the unique challenge of leading to centralization of governance. If I hold a large sum of governance tokens, I can force the network to implement features in my favor. Check if this problem unfair control has been made provision for by limiting tokens anyone can own. SOCIAL MEDIA The blockchain ecosystem of good projects is made of people. People are social creatures. Therefore, a good project should have solid online presence bustling with human engagement. It should be alive and up to date. This will help to promote the project and attract other people. So, check if projects build communities around their socials. Remember the network effect. But don't get carried away by the social media numbers are huge. Most of them are botted. So, be sure the engagement rate represents that large following. On Twitter, here's a simple metric to use. Engagement should be at least 1% of the number of followers. Engagement = Likes + RTs + Comments Likes + Tweets + RTs >= 1% of Number of Twitter Followers The higher this percentage, the better. On discord, you want to do a sentiment analysis. How do the members feel about the project? Are the excited? What is the frequency of comments like? Are people coming up with innovative ideas? Here are some of the other social media platforms blockchain projects use: LinkedIn Medium Youtube Reddit Telegram And of course their official websites and blogs. All these platforms are where projects leave their footprints online. Web3 Still depends on Web2 which depends on Web1 Never trust a gang of faceless developers until they have executed project targets beyond reasonable doubt. THE REAL WORLD IRL socio-economic situations. Recessions and other economic conditions affect blockchain projects like it does the world economic system. Enough said. If you have come this far, you’re a real one. 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