Key Takeaways:
Look at these four dimensions when doing your own research on a crypto project:
- Team: Is it balanced for the project? Does it have skin in the game, and does the team react if you reach out?
- Tokenomics: What is the token utility, market cap, volume, and liquidity? Is there a vesting/lock-up scheme on the horizon?
- Innovation: What problem is solved? What is the project’s edge over its competitors and existing projects? What does the roadmap look like, and is it meeting milestones?
- Social: Do its official channels have healthy activity levels and a friendly, welcoming community?
DYOR requires time, but discovering gems, potential airdrops, and risks before making buying decisions makes it worthwhile.
What Is DYOR?
If you have been in the crypto space even for a minute, you are sure to have heard the following advice: DYOR, short for ‘do your own research’. It’s commonly used to remind market participants to vet a project before making purchasing decisions.
Here, we break down four baseline factors to consider when looking to buy a coin, token, NFT, or any other stakes in a crypto project.
Factor 1: The Team
Find out who the team behind a token or project is. The starting point should be their website and white paper. A cryptocurrency without a white paper may be considered to raise a red flag.
Take a closer look at the team: What is their team size? A very small project with only two to three people on board may carry the risk of the project falling apart if a team member quits. Also, if everyone in the company is a C-level executive, this doesn’t necessarily match their experience, as title inflation is likely at play.
Does the team have relevant experience in blockchain, Web3, finance, computer science, or related disciplines? Is the team balanced, and does it cover the expertise necessary to run the project successfully?
Does the team have industry connections or well-known partners that showcase their experience in the field? If not acknowledged on their website, a Google or LinkedIn search may reveal this.
Which brings us to another point: Is the team doxxed (i.e., do they reveal their identity)? A completely anonymous team has very little to lose if its projects fail or are a scam. However, team members don’t necessarily need to doxx their real-world identity. If they connect a well-known Web3 identity that, for instance, has a lot of followers or is involved in other tokens or drops, they do, to an extent, have some skin in the game and concrete interest in seeing the project succeed.
Finally, reach out to them with questions (e.g., on Twitter or Discord). If they give a serious reply, this can be a good sign.
Factor 2: Tokenomics
The term ‘tokenomics’ is the portmanteau of ‘token’ and ‘economics’, which bundles together a number of factors affecting and affected by the supply and demand of a particular token. Tokenomics has become an area of study that is more than just for speculators to bet on the price of a token; rather, it is an important consideration that most crypto projects take into account when seeking to determine sustainable long-term viability.
Here are the main metrics that tend to be considered for building a tokenomics profile:
- Token Supply — How many coins or tokens are available in total?
- Issuance Tactics — For example, will there be token burns, which take tokens out of the market again?
- Allocation & Distribution — Is it an open, fair launch or a closed pre-mint that’s accessible only to a select group? Is the token centralised in a few holders’ hands?
- Vesting/Lock-up Schedules — Does the team hold a large part of the token supply that might hit the market at a fixed vesting date?
- Token Utility — What is the use of this token (e.g., a governance or utility coin with a specific function, or a meme coin)?
- Market Cap — What is the market cap compared to competitors?
- Volume & Exchanges — In what volume is this crypto traded, and how much liquidity does it have?
To learn more about calculating the risk profile of a project with tokenomics, see our article on token validation.
Factor 3: Innovation
Innovation is the third factor to consider. Is this project solving a problem that doesn’t have a solution yet, or is it redundant?
In other words, is the tech needed, is it new, and does the project already have competitors? If yes, how many? What is its competitive advantage over other projects offering a similar solution? And what are the weaknesses?
Take a close look at the project’s roadmap: What is coming and when? Has it been hitting its targets? A lack of a roadmap can be seen as a red flag. Well-managed projects in the space usually regularly and transparently update their followers on all milestones.
Advanced users in the crypto space might even think a little further and try to forecast the ripple effect a project’s innovation could have if it is successfully implemented. Also consider spending a few minutes thinking about the risks to this project: What could make it fail? And what is the team not telling us?
What makes an NFT popular? Read about these four factors before deciding on your next collectible.
Factor 4: Social
Social media and interaction is the last dimension we look at in this article. How the project and its community present themselves in public can give insight into the state of the project.
For example, look out for these:
Do they run official channels (e.g., Twitter, Discord, or GitHub)? How recent and often are these updated, and are the channels well maintained?
Take a look at the community size, both in terms of followers and engagement: How many users are talking about the project, using its hashtag, or tagging it?
What is the general sentiment of the community in groups and on channels? Does it give off a friendly vibe, with healthy, balanced, and objective discussions? Or are most community members only talking about token price, perhaps as paid shillers (token promoters)?
To summarise, red flags include abandoned channels, shillers, and a toxic community that only talks about rapid mooning and Lambos — and does not engage in open discussions, constructive criticism, or questions that are fact-based.
Why DYOR? It Sounds Like a Lot of Work
Let’s recap the four dimensions of DYOR that we have discussed:
Team: Is it balanced for the project? Does it have skin in the game, and does the team react when reaching out?
Tokenomics: What is the token utility, market cap, volume, and liquidity? Is there a vesting/lock-up scheme on the horizon?
Innovation: What problem is solved? What is the project’s edge over its competitors and existing projects? What does the roadmap look like, and is the project meeting milestones?
Social: Do the project’s official channels have healthy activity levels and a friendly, welcoming community?
It sounds like a lot of work to research a project in detail. So why do it? We have a few good reasons:
Learn about the space: The more you DYOR, the sharper your senses will be.
Understand risks: Before you buy a token or an NFT, take a good look at where your money will go.
Discover gems: This is the main aspiration for many in the space who DYOR. They hope to discover viable, innovative projects early.
Receive airdrops: Supporting a project early can sometimes be rewarded with airdrops.
Combat bear market boredom: Things are moving slower in a bear market, so many use this time to educate themselves.
Learn the best strategies to survive a bear market.
Due Diligence and DYOR
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Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.
