In addition, pay close attention to the team’s transparency. Is the development team transparent in presenting project plans and fund expenditures? Where do they usually interact with the community?
Tokenomics
Tokenomics is the economic aspect of a token, which includes token supply, distribution, and incentives for token owners. Analyzing tokenomics helps investors recognize crypto projects with a strong foundation to survive in volatile market conditions.
Whitepaper
Every token project must have a whitepaper, a document that details the features and solutions offered by a product or service to be launched. A token project's whitepaper must be accessible to the public and contain clear information of the project’s objectives, technology, token utility, and plans.
Be wary of token projects that have whitepapers without complete explanations. Reading the whitepaper is an easy way for anyone to evaluate a token project.
Roadmap
A crypto project roadmap contains development plans and milestones that the project aims to achieve within a set time frame. This method of evaluating crypto projects allows investors to assess whether a crypto project's ambitions are realistic or not.
Community
The community plays a big role in the success of a crypto project. A strong and engaged community drives the growth of a project. In addition, an active community is a sign of public interest in a project. Find out if the crypto project community is active on platforms like Discord, Telegram, or X.
Use Cases
Learn about the usability of a token in a crypto project. Is the token only used for price speculation, or does it have real-world utility?
You can conduct more in-depth research by looking into similar projects that are direct competitors to the project. What makes a crypto project stand out from other similar projects? If there used to be competitors with a similar vision, what caused those projects to fail?
You can research these things by yourself, but you can also ask the founder or development team directly via social media or community forums. A transparent and committed team will be willing to answer critical questions from potential investors.
Tokenomics and Utility of a Crypto Project
A token’s tokenomics and utility are several main factors in evaluating a crypto project. When learning how to evaluate crypto projects, pay attention to the following elements.
Total Supply
Tokenomics determines the maximum supply a token can have. For example, Bitcoin (BTC) has a total supply of 21 million coins. Once that number is reached, no new Bitcoins will be produced. However, there are also tokens with an infinite supply, such as Ether (ETH).
Why is total supply important? A limited supply, coupled with increasing adoption, causes the value of a token to increase over time. For example, Bitcoin’s limited supply has led to this asset being dubbed a “digital gold” due to its scarcity.
Also Read: Ethereum vs Bitcoin: Which is the Better Investment?
Circulating Supply
In addition to total supply, investors should also assess a token’s circulating supply. Then, we can calculate the market valuation of a token by multiplying the circulating supply by the current price of the token.
Token Distribution
Distribution refers to who holds the tokens and how much. Some crypto projects distribute tokens to early investors and venture capital as a form of fundraising. Others are given to the founder and development team as incentives.
Good tokenomics should have a detailed explanation of token distribution. After tokens are distributed to the development team and early investors, what percentage is distributed to the community? Also note whether tokens are distributed evenly or if most coins are owned by a handful of large wallets.
Also Read: Tokenomics Is: A Complete Guide, Components, and Real Examples
Burning
Burning is the process of destroying crypto assets by sending them to a wallet address that cannot be retrieved. Crypto tokens that have been burned will be permanently removed from circulation. Burning aims to reduce the circulating supply of a token to control its price and prevent inflation.
Each token project has its own burning plan. Some burn at fixed periods, but others do so randomly. Crypto projects with clear burning plans demonstrate their commitment in maintaining token value.
Vesting
Before a crypto project is launched, most are already funded by investors. They then receive rewards in the form of tokens.
Therefore, tokenomics also involves vesting, which is the process of locking tokens allocated to the development team or early investors. That way, tokens are not immediately sold in large quantities when the project is launched.
Checking the vesting period is a crypto project evaluation method rarely known to novice investors, when in fact, it has a significant impact on the supply of tokens entering the market.
Utility
Utility refers to the actual use of a token within and outside its ecosystem. In other words, utility is what token owners can do with their tokens aside from buying and selling them.
The utility of each token varies, for example:
- Facilitating Transactions: BNB is used to pay transaction fees on the Binance Smart Chain network.
- Access to Services: BAT rewards Brave browser users after interacting with the platform or viewing ads.
- Encouraging Community Participation: DRX rewards users who are active in the ecosystem through the DRX SportNet application.
Also Read: Utility Tokens: Definition, Function, and Roles in the World of Modern Cryptocurrency
Credibility of Crypto Project Teams
When you evaluate a crypto project, you are not just concerned about the token itself, but also the team behind it. How do you assess a crypto project’s development team? Consider the following points.
Background and Qualifications
Research the educational and professional backgrounds of the development team members through LinkedIn, personal websites, blogs, or social media. Look for relevant experience and achievements that demonstrate their knowledge and skills in blockchain, cryptography, software development, business, finance, marketing, and other related fields.
If a crypto project does not disclose the names of its development team members, or if the members' profiles are empty and their authenticity cannot be verified, you should be cautious.
Track Record and Reputation
Ensure that all team members possess professionalism, integrity, transparency, and trustworthiness. While researching the track record and reputation of the development team, try to answer the following questions.
- Has the team successfully developed previous projects or ventures?
- Does the team consistently meet its promises and targets?
- Has the team ever been involved in controversies or scandals?
- How does the team receive feedback and criticism?
- How does the team communicate with stakeholders and the project’s community?
Vision and Strategies
The purpose of learning how to evaluate crypto projects is to find out which projects suit our investment objectives. Therefore, pay attention to a project’s vision and strategy, as this reflects the goals that the development team wants to achieve.
A strong and realistic vision is an important aspect in assessing a crypto project. Avoid “vaporwave” projects that have grand but unrealistic visions.
When researching the vision and strategy of the development team, look for answers to these questions.
- What problems does the crypto project aim to solve?
- What is the unique value proposition and advantage of their project?
- What is the team's plan to achieve their goals?
- Are the project's roadmap and timeline realistic?
- How does the team measure progress and performance?
Roadmap and Partners of a Crypto Project
The final factor in evaluating a crypto project relates to its future plans and its relationships with partners and investors who support and provide it with capital.
Roadmap
A roadmap contains the long-term plans for a crypto project. A crypto project's roadmap should be publicly accessible, making it an easy way to evaluate a crypto project.
When evaluating a crypto project, make sure the roadmap contains the following:
- Project Objective Description: The project objectives must meet the SMART principles: specific, measurable with objective metrics, achievable, relevant to existing problems, and time-bound.
- Timeline: The project timeline must include milestones and deadlines that must be met. For example, when the project will be launched, when tokens will be distributed to the community, the vesting period, and the burning plan.
- Resource Allocation: The roadmap must explain the human, technological, and financial resources needed to achieve each milestone.
- Flexibility: The crypto and blockchain industries are constantly changing, so a good crypto project must be able to adapt to changes in technology, government regulations, or the way people view and interact with blockchain.
- Risk Management Strategy: A successful project roadmap must be able to explain the project's strategy for mitigating risks amid uncertainty, such as technical issues, regulatory changes, or market volatility.
Partners and Stakeholders
This step in evaluating a crypto project is used to assess a project's ability to collaborate and be trusted. Open and transparent communication between the project and its partners is a sign of a confident and reliable team.
When researching a crypto project's partners, try to answer the following questions.
- Who are the supporters, partners, investors, advisors, and influencers behind a crypto project?
- What is the reputation of the project's partners and supporting technology?
- Do the influencers promoting the project really understand crypto, or are they just paid for their fame and exposure?
- How does a crypto project interact and collaborate with other projects or organizations in the crypto ecosystem?
Conclusion
New crypto projects emerge every day, and not all projects are equal in quality. No need to worry—evaluating crypto projects is not difficult. Before investing in a crypto project, conduct an in-depth analysis of its tokenomics, development team, and project roadmap. This will arm you with in-depth knowledge about the background, current state, and future vision of a project.
Want to conduct a more in-depth crypto analysis to assess potential crypto projects? Learn how to perform fundamental and technical analysis in the article Crypto Analysis for Beginners: Fundamental vs Technical.
