Helping my friends to assess the quality of crypto projects on their own, instead of relying on me to make a decision. I've made this article as I would have had it back in the days when I got started with the crypto space.
I've been involved in the crypto space since 2013 when friends started to deal with the darknet. Since then, I've been looking at this market with more or less interests, depending on times of my life.
Throughout the time, people have been more and more involved in this space, looking at huge profits and cool stories all over the world. It reminds me a bit what startups faced a few years ago when people at parties saying :"oh wow you're working for a startup, that's so cool". I mean, it's the hype. Even if people don't know what it's like, what a startup is or whatever, they feel like it's great to be working for a startup because they have a wrong image of what it is.
It's the same with the crypto world. As soon as the hype will be gone, the space will look boring and people will go back to their "old life". I've always been trying to help my closest friends to get into it by themselves but very few did it. Which is sad.
Recently, I've received lots of messages from friends, family and other people asking me :"Should I buy this or that?", "Are you into X?" or "What do you think about this?"
It's really hard to deal with this because some of them might suffer losses and anger because they invested in the wrong project because of me. That's why I decided to create a guide that gives my friends the ability to analyze a project by themselves.
The framework contains the things that I've learned by myself, reading, looking and chatting with friends from various communities, it might not be perfect but I feel like it's a good starting point.
It's a four part framework:
1. Tokenomics: Market cap, total vs circulating supply, supply allocation, vesting, cligg, usage of the token in the ecosystem
2. The team: Skills, partners, backers (VC's?), Members
3. Market Recognition: Followers counts, community on Telegram or Discord ...
4. Profits Taking: How to take profits MTHFCKR
First thing first, what does mean "tokenomics"? It's simple, Tokenomics consists of two words “Token” and “Economics.” Tokenomics is the quality of a token which will convince users/investors to adopt it and help build the ecosystem around the underlying project of that token.
The first step when considering a project is to look at the market cap and classify it.
As I try to balance my investments into 3 different kind of market capitalization, (will be named "market cap" here after), I'll divide my analysis into different classifications. You can see it as is.
Note that the more you invest in small cap project, the higher the risk is because the output isn't always clear, the product isn't live yet so it's a bigger bet than big cap project that have already proven the market they can kickass.
That's why it's vital to diversify your investments into different kinds of projects to cover losses that might occur on your riskiest bets.
The supply means the total amount of token that are available. Each project has a different number of token. It's important to know how much token are circulating now, how much will be released in the future and how many of them will be minted (aka burned, destroyed, will not exist anymore, thus having an impact on inflation).
For example, for Bitcoin, we know that there will be 21M of coins created, and nothing more. For Ethereum, there is no limitation, which might seems scary but with EIP 1550 coming to life in July, ETH will be minted for each transactions.
Each token has a different strategy, it's important to understand what they are aiming at.
Perfect transition to token usage. Yes, each token has a specific purpose, I've said multiple times to my friends tokens where shares of the company so they don't get lost but it's rarely the case.
Each Token that you own gives you a special right, depending on the project.
For example, AAVE, as a token holders, offers the ability to vote for the governance of the project. It means you can vote whether or not the improvement proposal should be brought to life. There are many other things token can do so make sure to understand it.
In fact, there are 5 different types of Token:
1. Platform Token
2. Security Token
3. Transactional Token
4. Utility Token
5. Governance Token
If you want to know more about these tokens, click here.
Now that you understand what the token is about, you have to see how the tokens are allocated for the project you're looking at. In most cases, you should be able to find a pie chat that explains how they are distributed. You can often find these information in the white paper or the blog of the project.
If not, reach out to the telegram or discord community.
What we want to look at here is when are the tokens released. Good projects tends to allocate tokens for the founding team (a way for them to get paid), investors ... They have a cliff and a vesting period on them to make sure they don't leave with the money as soon as it's unlocked.
The best way is to verify in the Github repository of the project, which requires a bit of coding skills. If this is not your cup of tea, simply ask the community members or read the blog.
If a stakeholder has more than 50% of all the token, check the wallet address to see who's owning them and why. Once again, this is a simple security check to ensure you'll not get scammed.
Following these four steps, you now have a clear view of the data concerning the project you're analyzing. Now it's time to focus on the human side of the project: the team.
As you're investing in early project, such as small or middle market cap, they might have not deliver on their proposition value. That's why you're betting on humans, on their ability to deliver.
Analyzing the ability of a team to deliver their promises is a key factor in the success of your investment. Note that sometimes, some teams remain anonymous, which is a red flag to me.
For projects with non-anonymous team, you can often find details about the team on the company's website.
The first thing is I look at linkedin profiles, twitter and evaluate the trustworthiness of their profile. You might think I'm a psycho but multiple people have already been scammed with fake projects.
If you want to make sure these guys really exists because we're not all all the time on social networks, which is not my case (I shall write an article on my smartphone addiction anytime soon and what I've done to fight it).
Sometimes, founders of projects remain anonymous, the most famous being Satoshi Nakamoto and more recently, the founder of SushiSwap who stole the entire money drained from Uniswap (told you it was dangerous) but then came back apologizing 10 days later.
Most of the time, most promising projects have been funded by well-known investors. which is, to me, a mark of trust. I don't know each capital investor but when I see A16z, Coinbase Venture or Binance Venture, I tell myself this is a positive sign.
It's not a mistake to think that VC's who invested in this company have seen a long list of project before them. When I was working for a VC fund in Brest, we had a conversion rate under 5% which mean that for 100 projects, we invested in 5.
Honestly, this is the part I struggle the most with because it requires a strong understanding of economy and it is quite time-consuming. So here, I've applied what I've done to write my thesis back in the days: read the abstract and the conclusion.
It's enough to me to understand things and see where the project is heading. For the most suspicious, you can use plagiarism checker but I have never done it myself.
This is a broad topic, and honestly, a bit bullshit as you can buy followers and likes really easily but still, reaching out to a telegram community and seeing little to no message is a bad signal of interest.
Main channels are: twitter, discord and telegram.
Just to make sure you're not facing bots, you can tools such as botometer to get a score regarding a "@twitterName" so you don't get scammed. (We're talking about money, better check twice 😜).
It's not quantitative data, I agree, it's rather qualitative, it's up to you to define the vibes you get. For example, I've been checking Xaya recently. To me it feels like it's a project that is too young to invest, particularly because the community is about 3000 members on Telegram, which is quite small, with little to no engagement.
This may be the most important of the story because this is the final outcome we all want (⚠️ you're not here to make the world a better place?) there are few things you have to pu at work so you can improve your knowledge throughout the time.
Being able to understand how modern projects work and what it means in terms of value and tokenomics will have a huge impact on your ability to spot the right horse.
This is essential and you must not spare yourself: read, listen and watch everything you need to better understand what means EIP 1559 for Ethereum or what it means for Uniswap to add an oracle layer to his range of feature as proposed by Vitalik Buterin recently.
Each modification has an impact on tokenomics, and therefore, will increase or decrease scarcity and price of your tokens.
For example, EIP 1559 introduce ETH staking. What happens to a money when it is staked? It means it can't be used, so in a normal world, there is less money circulating, which makes it more expensive.
Another kind of dynamics is related to algorithmic stable coins (that we haven't talked about in this article) and how they maintain the value of their asset to the pegged value they mimic.
Being on top of the information before anyone else is key to make huge gains. Except that friend who's seen that crypto influencers talking about that specific coin that mooned right after, it won't happen. Honestly, no one cannot predict anything, it's up to you to be at the right time.
But what is the right time?
To me, there is no right time. Yes, I try to spot early project, but I also invest in projects that are expensive. The thing is, I'm aware of this and use the DCA strategy to cover my ass and not be worried of volatility.
DCA is a strategy that makes me invest the same amount of money each month, the same day. And I stick to it.
It will make your life much easier and you'll not have to worry about it. You just have to automate the wire each month from your bank.
On the other hand, if you're willing to make short term investment and gamble your life savings, you can try to bet on listing effects, such as a coin being listed on a worldwide exchange is often an enormous uplift in coin's value.
Best part of the game, when you can cash in my men! This reality is brutal and it works as cycles but there are ways to protect your funds. Don't fall in love with the project of the company, just because you feel it's the most promising project.
Put your emotions behind you. When you talk about investments, there can't be any emotions, feelings and all these stuffs that makes you weak.
Remember what you want is build wealth, not watch others make it.
Here is a strategy you can take on when to take profits on your gains. It's a process that you can do throughout the time, not at the peak or at the late end. It has to be done througout the pump.
It's called the 10/20/30/40 where you take 10% to ETH, 20% in BTC, 30% you leave in the coin and 40% you take out as stablecoin for example.
Don't let yourself overwhelmed with greed, or you'll regret it.
We still don't have a fast way to value a coin, that's why there's so much volatility. I still believe we're still ahead of a big bear market. Gold is at the level of the 2008 crisis, with even worse debt held by businesses (when in 2008 it was households), we might face one of the worst crisis the world has ever known.
However, this article is trying to give you the keys to create life changing earnings, hope it will help you to do so.
Few years ago, my two best friends Agathe and William invited me to take a world tour with them, I refused because I didn't have the money to go with them. Now, thanks to what I've applied, I can go and travel the world for a long time.
Hope you liked the article you just read 🎉 If so, feel free to have a chat with me by clicking on the black bubble to the right, I'll be happy to answer :)