Previous: Securing Multiple Wallets
Next: Introducing Staking
Many people, perhaps most, come to the crypto world hoping to make a profit. While this book will not recommend any investments, we will discuss considerations for investing in price appreciation by learning different ways to research a crypto project.
We will evaluate the potential upward and downward pressure on the price of a token based on tokenomics (the economics of a token), project fundamentals, and market conditions. This will be useful even if you intend to invest in something other than simple price appreciation. For example, if you want to put some dollar stablecoins into a yield farm, you must hold a gas token. In addition, it will be helpful to gather statistics on liquidity, likely appreciation, potential hacks, volatility, and more.
Most of all, I will show you a wide range of tools you can use to build an informed picture and come to your judgment to suit the risks you are prepared to take. If you get the impression at any point in this chapter that I am giving you financial advice, this is unintended. Instead, the contents of this chapter show you how to expose the factors of a crypto project for you to use your own judgment.
Tokenomics studies the design and behavior of tokens in a cryptocurrency ecosystem. It refers to the economics of tokens, including the rules and incentives that govern their creation, distribution, and use. Tokenomics is vital because it determines a token’s supply and demand dynamics and how it contributes to the overall health of the network it resides on. A robust tokenomics model should align the incentives of the token holders, developers, and users to ensure the project’s long-term success.
Some critical aspects of tokenomics to consider for crypto investing include:
- Token issuance: How are tokens created and distributed? Are they pre-mined or minted through mining or staking rewards?
- Token distribution: How is the token supply distributed among early investors, developers, and users?
- Token use case: What is the token’s purpose, and how is it used in the ecosystem?
- Token incentives: Are there any incentives for holding, using, or contributing to the project’s development?
- Token statistics: What is the total supply of tokens, and what is the rate at which new tokens will be created? How will token supply and demand affect the token price?
By considering these and other factors, investors can better understand the tokenomics of a particular cryptocurrency and how it may contribute to the success or failure of the project.
A high market cap brings relative price stability but requires greater investment to increase the price. The lower the market cap, the easier it is to move the price. On the other hand, a low market cap brings a greater risk of a rug pull or other failure.
Tokens can be issued to investors, developers, the community (incentives or freebies), a DAO or treasury for future development, staking rewards, or users. When tokens are given to early investors and locked, we need to consider the vesting schedule, that is, when and in what quantity they are released to the investor because if the investor dumps them on the market, it might affect the price.
Linear vesting is when the tokens are released in a steady stream, often daily, a set amount per day for a specified period. Cliff vesting is when a specific number of tokens are released simultaneously. Cliff vesting could cause more significant price drops than linear vesting. Vesting doesn’t have to drop the price. If demand outstrips the new supply, the price might remain steady or even increase. But vesting often causes at least a temporary fall.
You can explore vesting schedules for any tokens you consider buying at https://token.unlocks.app. In addition, the Token Unlocks website has a statistics dashboard for every significant token. For example, the following image shows the dashboard for the Aptos project and the APT token.
Aptos vesting schedule
The Aptos project has been widely criticized for giving too many tokens to early investors, so it would be an interesting dashboard to use as an example. In the preceding image, we can see that 85.18% of all the tokens are locked. This means there is, at some point, going to be significant inflation. The next unlock event is scheduled in 13 days and 12 hours, and 0.454% of all the tokens will open. A pie chart headed Vesting shows the overall distribution between Community, Core contributors, Foundation, and Investors. In the bottom right of the image is possibly the most valuable long-term investment tool – the vesting schedule diagram. There are dates along the bottom and quantities of tokens up the vertical axis. We can see how many tokens there are and the release dates. Remember, this isn’t an exact science. It is plain that the APT token will have high volumes of tokens released onto the market, but that doesn’t mean that the success of the network and the subsequent token adoption won’t outstrip the selling pressure from token sales. Only by assessing the project’s ecosystem of dApps can you even begin to guess the likely effect on price.
Another essential consideration with new projects, especially smaller crypto projects, is rug pulls. We will discuss a few types of rug pull in this book. In this context, a rug pull is when the creator of a project, the person who mints and distributes the token, sells all of their holdings for a more valuable token. Sometimes this will happen in a single tick of the blockchain. Other times it will be done steadily and deceptively to maximize their profits. All the rug puller needs to do is mint some tokens, give a large number to themselves, perhaps distribute over many wallets to mask the centralized ownership, then convince people that this is the next big crypto project. Then as eager investors swap valuable tokens for the new token, the creator will dump the worthless token for the valuable tokens.
A cryptocurrency whitepaper is a document that outlines the technical and economic specifications of a new cryptocurrency or blockchain-based project. In addition, it typically includes information about the project’s goals, features, benefits, and details about its technology, governance structure, and tokenomics. The purpose of a whitepaper is to provide potential investors, developers, and users with a clear and comprehensive understanding of the project and its underlying technology.
Cryptocurrency whitepapers are often considered critical to a new project’s success, as they help build trust and credibility with the cryptocurrency community. In addition, a well-written and well-researched whitepaper can also attract investment and support from early adopters and other stakeholders.
When evaluating a cryptocurrency whitepaper, there are several key factors to consider:
- Problem and solution: Does the whitepaper clearly describe the problem the project is trying to solve and its proposed solution?
- Technical specifications: Does the whitepaper provide detailed information about the technology and architecture behind the project, including its consensus mechanism, security features, and scalability solutions?
- Tokenomics: Does the whitepaper explain the token economics, including the total supply, distribution, vesting, and use cases of the token?
- Team and advisors: Does the whitepaper introduce the project’s team and advisors, including their experience and qualifications in the relevant fields? Or are they anonymous? What successful or unsuccessful projects have they been a part of before?
- Roadmap and timeline: Does the whitepaper provide a clear and realistic roadmap and timeline for the project’s development and implementation? Has the roadmap been achieved so far if the project has been around for a while?
- Technical progress: This is surprisingly easy to track. Other than sitting back and waiting for the project team to update the roadmap on their website, you can go straight to the source, literally, the source code. Most projects have public code repositories linked to their website. Look on the project website for a link to GitHub. GitHub is a code repository where most projects store and manage their code. It allows for smooth collaboration, separation of tasks, and experimentation. For example, here is the code repository for Parity Technologies the organization behind the Polkadot project. You can visit yourself at this link or view the image below.
Parity Technologies GitHub repo
If you scroll down a little on the GitHub page you can see the dozens of different code repositories related to the Polkadot project, ordered by most frequently updated. In the next image, you can see the frequency of code updates. For example, the frontier, ink, and parity-bridges-common projects have been updated 2 minutes, 3 minutes, and 6 minutes ago, respectively.
Polkadot is frequently updated
Polkadot is one of the most active crypto projects. This doesn’t mean it will succeed or that it is worth investing in but it is an encouraging sign they are progressing and innovating. You can even click on each of the projects and explore the details of the code updates if you are so inclined. You can also create a free GitHub account and follow your chosen projects to receive automatic progress updates.
- Legal and regulatory considerations: Does the whitepaper address legal and regulatory concerns, including any potential restrictions or limitations on the use of cryptocurrency in different jurisdictions?
- Competition: Does the whitepaper acknowledge and differentiate the project from existing solutions and competitors in the market?
It’s essential to read the whitepaper thoroughly and to have a good understanding of the underlying technology and market before investing in any cryptocurrency project.
A shortcut might be to use AI. The ChatPDF project allows you to supply a PDF of a web link and get a summary in non-technical language. Here is the ChatPDF website.
Much of what I have just discussed is technical but don’t worry. You can find out what other people think about a whitepaper. For example, a quick web search for “explain x project whitepaper” will yield more valuable responses than “Should I buy x token.”
Audits are most relevant and common for specific dApps. But this is good if you evaluate a network with an ecosystem of dApps with good tokenomics and successful audits. Audits are the evaluation of the code and its deployment. For example, a smart contract audit is a security and code review of a smart contract. A smart contract audit tries to ensure the code is secure, gas efficient, and meets the requirements and specifications outlined in the whitepaper or other project documentation.
During a smart contract audit, a team of security experts and developers thoroughly review the code and perform various security tests, such as penetration testing and code analysis, to identify potential vulnerabilities or bugs. They verify that the code follows best practices for smart contract development and meets the project’s requirements and specifications.
Smart contract audits are essential in developing and deploying a project, as they help ensure the code’s security and reliability and minimize the risk of potential security breaches or vulnerabilities. They also help to build trust and credibility with investors and users by demonstrating a commitment to security and transparency.
Smart contract audits are rarely a guarantee of safety and never a guarantee of profitability for the user or the investor. However, many of the best projects will have multiple published audits. And the auditor’s skill, past work, and reputation are almost as important as the audit’s conclusions.
On-chain analytics refers to the analysis of data that is stored on a blockchain network. This includes data about transactions, token transfers, network activity, and other events that occur on the blockchain. On-chain analytics provides valuable insights into the behavior and activity of a blockchain network and its users, helping to shed light on trends, patterns, and behaviors that may not be immediately visible from raw transaction data.
On-chain analytics can be used for a variety of purposes, including:
- Market analysis: On-chain analytics can be used to track the flow of tokens, monitor market trends and sentiment, and assess the overall health of a blockchain network.
- Network activity: On-chain analytics can be used to track the number of transactions, the size of the network, and other metrics that provide insight into the level of activity on a blockchain network.
- User behavior: On-chain analytics can be used to track the behavior of individual users, including their token holdings, transaction history, and network interactions.
- Token economics: On-chain analytics can be used to assess the supply and demand dynamics of a particular token, including its circulating supply, burn rate, and other metrics that impact its price.
On-chain analytics is an essential tool for understanding the behavior and activity of a blockchain network and its users. It can inform investment decisions, assess the overall health of a network, and monitor the effectiveness of specific protocols and technologies. Each blockchain has at least one explorer; most established networks have many. Block explorers are usually the raw data from a node on the network. For example, this is a widely used block explorer for the Ethereum network called Etherscan which you can view at https://etherscan.io. You can also look at the screenshot below.
On Etherscan you can view the latest blocks and transactions, click into them for more detail like amounts, addresses, and fees. You can even view the smart contract code that executed the transaction. The data on Etherscan and most other block explorers goes right back to the genesis of the network.
The most useful on-chain analytics tools will aggregate the data from a node to yield some conclusions. Let’s look at one widely regarded tool in the field of on-chain analytics.
Glassnode collects and presents data from Bitcoin and Ethereum. Understanding Glassnode and using it to its fullest is a science. I recommended subscribing to the free account because you get a load of helpful free charts and subscribing to their YouTube channel because they do a weekly presentation on Bitcoin’s on-chain metrics, which is a great way to stay up-to-date as well as learn how to use Glassnode and other similar tools. Where bitcoin goes often, the rest of the market follows.
Go to https://studio.glassnode.com/dashboards/btc-core-on-chain, and we will explore one of the data dashboards they supply for free. Below is the Supply Last Active 1+ Years Ago chart.
Supply last active
This shows us the accumulation and movement of BTC supply. When investors buy and hold coins for extended periods, this metric will increase as more coins reach the 1-year “age” of first being accumulated in a specific wallet. Conversely, when these long-term holders sell or move their coins, this metric will decrease, causing the “old” coins to become “young” again.
The preceding chart shows that around 60% of all bitcoin haven’t moved in over a year. This means people are currently hodling. Hodling is a misspelling of the word “holding” that was popularized among the cryptocurrency community to refer to holding onto cryptocurrencies for an extended period, regardless of short-term price fluctuations, with the expectation that the value of the assets will increase over time. It has become a popular meme in the crypto world, often used to describe a strong belief in the long-term potential of cryptocurrencies.
Next, we will explore the related field of DeFi analytics.
We haven’t gotten onto DeFi yet, although we have mentioned it several times. DeFi is decentralized finance and refers to any activity that mirrors the traditional financial world except using a dApp. Typical activities include lending, borrowing, trading, and providing liquidity for others to trade. Before diving into DeFi with our money, it will serve us well to look at and understand how and where other people are deploying their money.
Because of the open, decentralized nature of DeFi, all regulated and controlled by publicly readable code, we can know much about a dApp, blockchain, or specific protocol before we risk our money.
It is this transparency that makes DeFi better than the traditional finance system. Remember that a lack of compartmentalization and the opacity of the risks being taken were likely the cause of the 2008 financial crisis. Make no mistake; significant risks are being taken in DeFi. Still, the difference is that you can see the specifics, quantities, and even the code of the smart contracts that govern the protocols before considering risking your money.
As we have learned, you need to be an expert to read the code yourself but reading audits and listening to the DeFi community is very useful and easy to do. But where do you even start to find a good DeFi project? Let’s look at what everybody else is doing by exploring a website that collates valuable live data on DeFi.
Despite its quirky name, Defi Llama is one of the best tools for DeFi data and compared to only free tools, it is unarguably the best. So, let’s see how Defi Llama can help us.
Firstly, Defi Llama offers a comprehensive and fine-grained view of DeFi protocols. It covers all the major chains and many of the lesser-known speculative chains. Moreover, it covers an abundance of dApps on all these chains and allows us to view data by dApp, chain, sector, token, and more. By sorting and analyzing this data, we can quickly find the highest yields (usually accompanied by the highest risk), the most stable yields, the opportunities based on the tokens we like to hold, and possibly the best measure – what everybody else is doing, where is most of the money.
Why not visit https://defillama.com now and look at the homepage or dashboard as it’s known?
Defi llama home page
As you can see, there is much to take in. First, we can see the significant metric of 45.28 billion total value locked or TVL. This value in dollars currently resides in all defi protocols across all chains. We can see that this value increased by 0.46% in the last 24 hours. The Lido Dominance metric is 17.29%, the biggest single defi app. Lido is a liquid staking protocol. Liquid staking is where the service, in this case, Lido, provides its tokens in return for staking through them. This means you get the benefits of staking and a token that holds value to do other things with while your “real” tokens are locked up in the staking protocol. The Lido-issued tokens are called liquidity tokens. Most Lido-issued liquidity tokens are issued for Ethereum staking. If you sell or lose your liquidity tokens, you cannot get your staked Ethereum back.
The total TVL chart shows the increase and decreases over time. If you look at the Bitcoin price chart, it is a very similar shape. As mentioned, the entire crypto market is closely correlated to Bitcoin, and DeFi TVL is closely linked to the altcoin market, especially Ethereum. If a token is going down in price, fewer people want to hold it and participate in DeFi because the losses from holding a token can be more than the gains from participating in DeFi. However, 45.2 billion dollars worth (at the time of writing) of participation is prepared to take the risk.
Look at the league table of crypto rankings. Number 2 is MakerDAO, a decentralized stable coin issuer. Number three is AAVE which is the most established lending and borrowing protocol. Look to the right of the Name column at the Chains column, as shown next.
DeFi llama top 6
We can see that AAVE is available on seven different chains. In chapter 15, we will lend and borrow with AAVE on the Polygon chain. At number 4, we have Curve. In chapter 21, we will see how to use Curve indirectly when Yield Farming on Yearn. Yearn itself is number 23 in the TVL rankings. We will leverage trade with GMX on the Arbitrum chain in chapter 19, and we will swap tokens and earn some yield on Uniswap, currently at rank 6, when we get to chapter 17. Finally, let’s see what else we can do on Defi Llama.
There are many different dashboards/views. The two most useful are TVL and Yields. The bigger the yield, the bigger the risk. The more the TVL, the more trusted it is. This doesn’t mean there aren’t some excellent yields that you might feel comfortable participating in, and it doesn’t mean that just because everyone else is doing it, it’s safe, definitely not.
Well-established audited projects, using tokens you like holding and a yield you find attractive, are an excellent place to begin your research to decide where, if anywhere, to put your crypto.
Let’s drill down into yield and TVL and categorize them by activity type. Click on Yields near the top of the left-hand menu – just underneath DeFi. On the Yields page, the list is still sorted by TVL. Click on the APY column of the data to see the best yields in the business. Here is a screenshot taken in January 2023.
Defi Llama’s top yields
You can see the top-yielding opportunity is on SushiSwap, which is a decentralized exchange. To earn 8711% APY, you must deposit ANGLE and WETH on the Ethereum chain. SushiSwap is a respected DEX, but I have never heard of ANGLE. I will not even bother looking it up because of the TVL column. There are just 10,081 dollars locked in that smart contract. The problem with this opportunity is that WETH is a top coin. It is the Wrapped version of Ethereum. So if an ANGLE holder, perhaps the same person who created the token, were to sell a significant amount for WETH, the ANGLE token would be worth significantly less – maybe zero. The mathematics of this will be explained in the introduction to DEXs and providing liquidity in chapter 16. On the other hand, if you are an expert in the ANGLE token and are confident that many people will want to buy it in exchange for the blue-chip WETH, then you can earn about 725% per month once you learn how to use a DEX. Such opportunities exist; most will get you burned, however.
Click the TVL column heading to see the highest TVL opportunities and yields, as shown next.
Defi Llama’s lowest yields
Here we can see there are 7.65 billion dollars in Lido. Look further down the list; we see 657 million dollars of WETH using AAVE on Ethereum. We will participate by borrowing some WETH on AAVE and then using it to provide liquidity on the Uniswap DEX. We will lend a dollar stablecoin, USDC, earn interest, and borrow the WETH. The WETH will cost more to borrow than the USDC pays, but the interest earned will offset the interest owed. We can then put our WETH to work by providing liquidity for traders on Uniswap and hopefully end up with a net profit. We will use the Polygon chain, not Ethereum, as shown here.
Just above the table of data (not the top of the data), click Chain, select Clear, and then select Polygon. The data is shown next.
AAVE on Polygon
In the preceding image, we can see that AAVE dominates the TVL on the Polygon chain. The top entry is WETH, with 82.5 million dollars of liquidity. Nowhere near the billions on Ethereum, but still quite respectable.
Defi Llama offers so much more than there is time to explore here. I recommend exploring it as deeply as you can.
Other free and premium analytics platforms that are useful for DeFi and for general token evaluation include Nansen (https://nansen.ai) for incredibly deep analysis and tracking and is especially useful for NFTs. Nansen has decent free features but the best data can only be gleaned from a significant monthly premium. I am not a Nansen user, but you can make up your own mind. We will cover NFTs and investment considerations later in the book.
Token Metrics is a great site for general price data (https://tokenmetrics.com), and Token Terminal (https://tokenterminal.com) has loads of free tools for digging deep into a token’s properties, like TVL, holder details, trading volume, most used smart contracts, wallet distribution and more – for free – although they do have premium features too.
Find out metrics about decentralized trading by visiting https://dextools.io and https://dexscreener.com lets you drill down through all the data for all the decentralized exchanges, right to the pairs of tokens being traded. If this sounds confusing it will become apparent when we discuss DEXs in chapter 16.
If you want to explore some very new – very risky token that is not on Coin Market Cap or Coin Gecko, you can try the amusingly named PooCoin at https://poocoin.app. Be warned it is called Poo Coin for a reason. Much of what you find here will stink! But there are occasional legitimate gems that polish up nicely.
I like CoinMarketCal at https://coinmarketcal.com which is a forward-looking calendar of all crypto events big and small. Perhaps a new token launch or a major upgrade, CoinMarketCal will probably forewarn you. CoinMarketCal also give links to the sources for their information which allows you to evaluate the likely authenticity.
Another site worth bookmarking is https://cryptofees.info which as the name suggests tells you all the current gas fees across all the major chains. I am always looking for a dip in the Ethereum gas fees for an opportunity to move my ETH off the centralized exchanges.
GoinGecko has a sister site called ChainList which lists all the chains along with the data you need to connect your wallet. This is a great source because simply doing a web search for such information can sometimes lead to malicious links that will try to scam you. Throughout this book, I will always tell you how and where to get the appropriate data, but the purpose of this book is that you eventually go off and explore new places on your own, and ChainList at https://chainlist.org will likely prove useful.
Many crypto tokens can be staked to play a role in securing the network and earning some passive income. The details around staking will be discussed in the next chapter and tutorials on how to stake on multiple different chains follow on, but to evaluate the different pros and cons of staking on different chains for yourself you can use https://stakingrewards.com.
In the preceding image, you can see a list of the blockchains with the highest staking rewards. Click on any that are interesting to find out more details.
There are dozens more statistics and analytics websites and apps. I will add more here in the next edition and introduce/reintroduce some more as we proceed through the book.
If you use DeFi, you will need to hold at least some of the tokens or tokens of the chain or chains you are doing your DeFi on. Therefore, even if you have no interest in investing in price appreciation, it is still worth being able to evaluate the projects and tokens you will be exposed to.
We have already talked about tokenomics, whitepapers, and audits, but we can treat it like a checklist in this section. Of course, not everything on the checklist will be suitable for every token you investigate; but the more things you check and the deeper you go, the more likely you will find something that warns you off from a project, changes your approach, or even reveals a hidden investment gem.
Throughout the following processes, make lots of notes, create your timeline/history of the project, and collect links. Is there lots of interest – No- is it very early or just dead? If there is lots of interest, are you late, or is this a solid long-term project? I use Microsoft OneNote as it allows formatting, links, categorization, inserting of media like video and images, cloud storage, and accessibility across desktop and mobile. By the end of the process, you should have your portfolio of data, notes, and conclusions.
Throughout the process, keep looking out for warning signs. Limited interest, lack of available detail, dodgy founders/investors, high inflation, aggressive vesting schedule, anything you don’t like or doesn’t suit what you want from a project. At every point, write some notes.
- Pick an initial project. You can do this by browsing the first few pages of Coin Market Cap. The higher ranked, the more established; the lower ranked might mean you have found a gem or a dying project on the way down to zero. Next, search within the category (DeFi, Gaming, DEXs, etc.) and find its likely competitors. Are they bigger or smaller projects? Could they cause your investment fundamental problems? Could they be a better investment than the project you are currently researching? Keep the competitors in mind throughout this process. Write them down.
- What is so great? USP. Why are YOU interested in this project? Please write it down.
- Find and read the project website, especially the FAQ, whitepaper, and roadmap. The whitepaper is often technical but shouldn’t be written for expert cryptographers. If it seems to be that way, it could be a scam, or perhaps you need to google or search social media for a more straightforward explanation. Where are they going? Have they missed or met any roadmap goals? Are there any goals coming up soon?
- Read everything you can find on the following three websites: Cryptorank.io, coinmarketcap.com, and coingecko.com. These three websites provide the standard, short-form data on almost every token. Be careful because the project’s marketing team often writes the “about” sections; however, they are a great early step to take as well as an introduction, and you will find links to things like the project’s website and any blockchain explorers and wallet browsers, and an ecosystem of projects for further exploration if an ecosystem exists yet.
- Ask yourself: Do you properly understand what the project does, who will use it, and how it works? If not, go back to the website and ask yourself if the lack of understanding is yours or the project’s fault. If the website doesn’t adequately explain the USP, this could be a reason to give up on it. On the other hand, if the project documentation is overwhelmingly complicated, can you satisfy yourself that you understand enough to interpret news, commentary, and history as it evolves once you hold the token?
- Read smart contract audits and reports for the project and projects in its ecosystem: This is a bad sign if no report exists. Even if there is a report, how reputable is the company? Crypto companies are often brand new, but the individuals usually come with a track record. Have there been any smart contract failures since a positive audit was done? This is especially the case if you use DeFi on the project. If a project is hacked, it will undoubtedly lose a percentage of its value, but if someone steals your money in the hack, you have lost 100%!
- Other people’s price predictions: Take all price predictions with a pinch of salt, but the reasons for price predictions can be interesting. Does a project solve a problem, have an exciting roadmap, and have developers with a track record of delivery? Again, ignore the actual prices predicted but investigate and explore further the reasons given. Use websites like tradingbeasts.com/crypto and cryptopriceprediction.com. Ignore the prices – explore the reasons.
- Study the tokenomics and be aware of vesting, inflation, utility, and other tokens related to the same project.
- Who are the investors, and do they have a reputation for long-term project management or short-term profit-taking?
- Who are the founders? Find them on LinkedIn, listen to them, and research them. What have they done before? What are their qualifications, successes, and failures
- Read other researchers on Coin Market Cap, Messari, and Binance Research
- Find and assess all long-form social channels like medium, YouTube, etc.- watch the videos.
- How old is the project? Learn its history.
- Find crypto influencers that follow the project and explore opinions. Be wary of hype at this point.
- Governance – Who owns it, what is the division of responsibilities (development, marketing, management), which VCs, if any, Google and read about the qualifications, and past projects of those involved
- Consider how popular others may consider it – is it likely to be a long-term investment or a quick flip? Positive sentiment should be taken with a pinch of salt. Negative sentiment should be considered more carefully. In crypto, proposing something exciting is easy, but much harder to deliver something functional.
- Try and use the project. This is my favorite means of reassurance if the rest of the research is proving positive. I often do this right at the start of the process because it is enjoyable. For example, I recently got sucked into the hype of a new gaming project. Their website looked amazing, and the screenshots of the games were exciting. However, as soon as I started clicking into the dApps and games, I realized nothing, literally, nothing, worked – apart from the ability to buy overpriced NFTs. On the other hand, if the project you are interested in has a great ecosystem of cool dApps with neat UX, this is a big plus. Can you do anything, or is it just a dream for the future? How good are the UX and UI, or if unavailable, how believable is the dream?
- What project(s) is it associated with/dependent upon? Is it available on major exchanges? Yes – is it overexposed to the market? No – is there something wrong with it?
- Browse headlines from the project history in date order – Use CoinTelegraph, CoinDesk, Decrypt, CryptoSlate, and The Block. Be aware of their biases and the amount of interest (Number of readers) in articles. All media is biased. All of them! Decrypt has intelligent articles and the best video interviews but watch out for that bias. One of the best news sites is DL News at https://dlnews.com it is affiliated with the DefiLLama statistics website we have been exploring. I wouldn’t like to go so far as to say, “they are impartial” but they seem quite good and the writing is excellent.
- Find and follow them on Telegram, Discord, Reddit, and Twitter. Scan the conversation and ask questions. Are there many legitimate questions and viable answers, or is the forum a ghost town – or worse, is it constantly spammed with rocket or moon emojis?
- Look at price charts and consider market trends and the macro environment. For example, is there about to be a new war, recession, famine, interest rate rise, influential election, earnings report, etc.? Bad news on the horizon doesn’t mean the project isn’t worth buying but can dump the price down, perhaps providing a good entry point to buy.
- Which exchanges have the token, and what features do I need to purchase in my preferred strategy: Is the direction of the price clear? – I.e., I should wait or buy now. Or should I use the dollar cost average technique? Can you get it on an exchange that allows you to use a dollar-cost average bot, or do you need to remember to log in and buy this every time? Is this a must-buy opportunity where I need to go all in? Such things are rare, but they do happen from time to time.
- Review your notes from the research phase.
- If you feel a token is fantastic and must buy it now, have you been through the entire checklist? Yes? Consider waiting and see if you feel the same tomorrow. Better to lose a few percentage points of gain than lose everything.
- What is the best strategy for investing: large buy, DCA, etc.? Again, putting the project on a “maybe later” list and following it on social media is a perfectly acceptable outcome; you don’t have to go all in or discard the project immediately. What you learned through your research will benefit your assessment of future projects.
- If you invest, summarize why you invested, how you will buy, how much, and under what circumstances you will sell. This is known as a trading journal and you can read more about them here: https://admiralmarkets.com/education/articles/forex-basics/trading-journal. Note that I am not endorsing the company in the link (or any of the other links) but it is a good article to learn more.
As we saw in the section on dollar-cost-averaging, you can buy your entire investment at once, but if you put all your money into a token and the price halves, or worse, you have lost lots of money. If, on the other hand, you put a little in each day, week, or month over a predetermined time, you will achieve a good average. If DCA is the best strategy for an investment you can use the bots provided on most exchanges. However, if you need a particularly wide range of obscure tokens to choose from Kucoin has the most. If you, like me, don’t have much spare capital, Binance allows you to use its auto-invest feature which lets you specify 5 tokens spread over a $1 investment at a predetermined interval. See chapter xxx for the details on how to do this.
I can’t stress enough that this chapter’s information is inadequate to make life-changing investments. Instead, it should be treated as the starting point to consider minimal, speculative bets where you are prepared to lose all of the principal. Never invest more than you are prepared to lose.
Previous: Securing Multiple Wallets
Next: Introducing Staking