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.
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:
Here are the thing to evaluate:
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.
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.
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
Successful projects have one thing in common...
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:
A good sign of an active project is that they update their roadmaps regularly.
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:
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
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
In most projects, governance tokens is... you guessed... it to be used for governance and decision making without a central controller.
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:
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.
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 blockchain technologies yank out middlemen thanks to decentralization.
Check how decentralized a project is, by considering these factors:
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.
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.
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:
The suite of tools used in projects can point to how they may be compatible with legacy systems later, for instance.
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.
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:
REAL-TIME MARKET METRICS
Check Coinmarketcap or Coingecko for trading data and a feel of the market sentiment towards the coins/tokens:
Moreover, you can use these metrics in estimating future price growth.
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
Transaction Values & Fees
Exchange Inflows and Outflows
You can't get these from candlesticks.
CryptoQuant is great for gathering these data.
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 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
Check if this problem unfair control has been made provision for by limiting tokens anyone can own.
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:
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.
IRL socio-economic situations.
Recessions and other economic conditions affect blockchain projects like it does the world economic system.
If you have come this far, you’re a real one.
Contact me if you need a copywriter that understand and simplifies blockchain technology.