How to DYOR (Do Your Own Research)
How to: DYOR (Do Your Own Research)
Entering the world of cryptocurrency is an exciting experience. However, without gaining proper knowledge about the necessary steps to take before investing in a cryptocurrency project, you may risk losing your money by investing in the wrong project.
In the cryptocurrency space, we don't blindly invest in any cryptocurrency project we come across. This is because the cryptocurrency market is saturated with various products, and some teams tend to create projects without proper planning. Unfortunately, this can lead to them running away with people's investments. Therefore, it's important not to be carried away by excitement. It is advisable for everyone to conduct thorough research on any project they wish to invest in to avoid falling victim to a scam project.
Here is a comprehensive guide with the necessary information you need in order to conduct proper research on any cryptocurrency project you come across before investing in it.
WHAT DOES DYOR MEAN IN CRYPTOCURRENCY?
The word "DYOR" is a common acronym used by crypto enthusiasts in the cryptocurrency world which stands for "Do Your Own Research." It is used to remind people that they should not blindly follow the advice of others, but rather do their own due diligence before investing in any cryptocurrency project. This is important because the cryptocurrency market is volatile and there are many scams and misinformation circulating that can make someone lose your money.
Doing your own research is essential before investing in any cryptocurrency project, especially for beginners.The cryptocurrency market can be really unpredictable, and some crypto projects might try to promote themselves even if they don't actually have a good plan or purpose. Unfortunately, this can lead to them taking people's money and disappearing. To avoid falling into such traps, it's essential to learn how to properly investigate a cryptocurrency project before putting your money into it.
THE KEY FACTORS TO CONSIDER WHEN EVALUATING A CRYPTO PROJECT
Before you decide on investing your money into a project here are factors i will like you to look at for in a cryptocurrency project before making your final decision on investing in it:
What is the product the project is creating?
When you come across a project you want to invest in, the first thing you need to consider is what product this project is creating. What problem does it solve? Is there a real need for it in the market that will cause people to invest in it? Read through the project's whitepaper, join their community, and ask questions in order to gain insights into its goals and objectives before investing into it.
Is it finished?
A critical factor to consider is whether the project is finished or still in development. A completed product demonstrates a level of commitment and execution. Be cautious of projects that promise revolutionary features but have no tangible progress to show for it. Some projects are still in their early stages of development, while others are more mature. So you need to be careful when investing in projects still working on their development because it comes with a lot of risk, as they might not end up achieving what they have planned.
Are they using misleading or deceptive marketing tactics?
Marketing is an important strategy that cryptocurrency projects use in creating awareness about themselves. However, some projects use it in a misleading or deceptive way, such as paying cryptocurrency influencers or YouTubers to promote their project with false information in order to lure investors. It is important to always do your own research to verify the claims made by any cryptocurrency project before investing.
Do they generate revenue already?
When researching cryptocurrency projects, it is important to look for projects that have a sustainable revenue model. This means that the project has a way to generate income that is not reliant on the price of the cryptocurrency itself. Some examples of sustainable revenue models include transaction fees, staking rewards, and subscription services. A sustainable revenue model can be an indicator of long-term viability and also help in project development.
Is the project well-positioned to compete with its rivals?
The cryptocurrency space is a crowded marketplace filled with numerous products and intense competition. Many projects are seeking attention and investment but may not be prepared to build a sustainable product. When conducting your research, it is crucial to invest in projects that are well-positioned to compete with their rivals. This entails having a strong team, a clear vision, strategic partnerships, robust community support, and a unique value proposition to support their efforts.
Do they have a roadmap/docs? have they been delivering?
A roadmap is a well-documented plan that outlines the goals and objectives of a cryptocurrency project. When researching a project, take the time to review the project's timeline and milestones to determine if they align with the development progress. Investigate whether the team has a history of delivering on their promises. Consistency in meeting deadlines and achieving goals is a positive sign. This helps demonstrate how dedicated the team behind the project is, showing that they are serious and ready to deliver the work without misappropriating investors' funds.
UNDERSTANDING PROJECT TOKENOMICS
Understanding the tokenomics of a project is an important factor to consider when evaluating it, so you don't invest in a scam project or one that is being controlled by a small group of insiders. Tokenomics is the economic model of a blockchain-based project. It takes into account how the project's tokens are created, distributed, used, and their supply, demand, and other characteristics.
When conducting research on a cryptocurrency project, it is crucial for you to delve into their tokenomics. You can find more information about the project's tokenomics on their website or by engaging with their community to inquire about it. Some key aspects you should be looking for include:
1. Determining if a large portion of the allocation is being given to insiders who may dump on everyone
When evaluating a project's tokenomics, it is important to determine if an unreasonable amount of the allocation is being given to insiders, such as the team, advisors, or investors. This is because insiders have the potential of selling a significant portion of their holding in a way that could negatively affect the price of the token, making the price crash. To evaluate this aspect of tokenomics, firstly scrutinize its white paper and tokenomics to ensure transparent token supply and distribution, then evaluate the team's reputation and experience, examine historical data for past insider dumping, and vigilantly monitor the market for sudden price drops post-insider token release, as these factors collectively serve as vital red flags in assessing its potential.
2. Analyzing the token distribution to identify potential risks and benefits
The token distribution is another important aspect of tokenomics. It refers to how the tokens are allocated to different stakeholders, such as the team, investors, and community members. The distribution can have a significant impact on the project's success, as it can affect the price of the tokens, the level of participation, and the security of the network.
3. The differences between good and bad project tokenomics
Good tokenomics are essential for the success of a blockchain-based project. They can attract investors, encourage participation, and create a sustainable economy. Bad tokenomics, on the other hand, can lead to the project's failure.
Here are some of the key differences between good and bad project tokenomics you need to put into consideration when doing your research:
a) Good Tokenomics:
- Transparent allocation with a clear breakdown of token distribution.
- Fair and equitable distribution mechanisms that encourage community participation.
- Lock-up periods or vesting schedules for team members and advisors to prevent insider dumping.
- A clear plan for token utility within the project's ecosystem, ensuring the token has real value and use cases.
b) Bad Tokenomics:
- Lack of transparency regarding token allocation and distribution.
- A high concentration of tokens in the hands of a few individuals or entities.
- Frequent instances of insider dumping.
- Tokens with no clear utility or use case, leading to risky trading.
Every cryptocurrency project must establish a community through platforms such as Twitter, Discord, Telegram, Medium, or a blog. These communities provide members with opportunities to communicate with each other and interact with team members, enabling them to seek answers to any questions they may have.
A community aids in your research because when you're reviewing a project's documentation, you may not always find all the details provided on their website, or the information given may be unclear. Therefore, having access to a project community allows you to ask your questions directly to the team and receive a prompt response. A cryptocurrency project lacking a community should be considered a red flag, and it's advisable not to invest your money in it.
ESSENTIAL TOOLS AND PLATFORMS USE FOR CRYPTOCURRENCY RESEARCH
As a beginner, there are important tools you'll need to have in order to conduct thorough research on cryptocurrency projects before you invest in them. This guide will focus on these tools, and some of the key ones include CoinGecko, DefiLlama, and Step Finance.
These guides will explore the process of conducting effective research using the tools mentioned above. They will delve into how each tool serves distinct purposes and contributes to providing precise data about a cryptocurrency project. This information is crucial for obtaining a solid understanding of a cryptocurrency project before deciding to invest in it.
CoinGecko is a leading cryptocurrency data platform that provides a wide range of information on cryptocurrency projects and the market. It is used by cryptocurrency enthusiasts, investors, traders, and researchers to gather information and make informed decisions in the cryptocurrency space. Some of its key features and uses include:
Crypto Price Monitoring:
CoinGecko monitors the real-time prices of numerous cryptocurrencies across the globe, enabling users to observe fluctuations in prices, access historical data, and analyze trading volumes for various digital assets.
CoinGecko provides detailed information on individual cryptocurrencies, such as current market capitalization, trading volume, circulating supply, total supply, and more. It also provides links to the project's website, social media, documentation, community, and blockchain to help users avoid scam links and get a well-rounded understanding of a project so they don't lose their money to scams.
Cryptocurrency Price Chart:
CoinGecko offers informative price charts that allow users to visualize and analyze the historical price trends of cryptocurrencies across different time frames. This helps users to track project growth and make informed predictions about future price movements.
CoinGecko provides information about exchange markets for various cryptocurrencies. This helps users identify the specific exchanges where a cryptocurrency is listed. In case they decide to invest, they can easily find the exchange where it's listed and proceed with purchasing. This ensures they avoid potential scam sites or clicking on phishing links.
DeFiLlama is an essential tool that anyone involved in defi should have as part of their research toolkit. It serves as a data aggregator and analytics platform used to track the Total Value Locked (TVL) in DeFi protocols across all blockchains. This platform can help users identify the most popular DeFi protocols, discover high-yield DeFi opportunities, and stay informed about the latest developments in the DeFi space.
As a newbie in this space, maintaining profitability can be challenging without equipping yourself with the right research tools. Staying updated with market trends and identifying upcoming projects before they surge or start trending is crucial so you don’t miss out on profitable opportunities. That's why having DefiLlama in your research toolkit is of great importance. Some of the key features offered by Defillama include:
Project TVL Growth and % Change:
DefiLlama helps us track project growth in terms of Total Value Locked (TVL), which is a metric measuring the total amount of cryptocurrency deposited in DeFi protocols, as well as the percentage change. This enables us to monitor the expansion of a project and identify the protocols in which people are investing. As a newbie, it's important to consider the percentage change across different protocols. This provides insight into where people are allocating their funds and which protocols they are withdrawing their investments from.
Cryptocurrency OnChain Metrics:
Defillama is an exceptional tool that provides valuable insights into projects. It goes beyond simply offering the TVL of a project; it also presents additional on-chain information through chart patterns. This empowers users to better comprehend what is occurring behind the scenes, aiding them in making informed investment decisions.
It is also important to bookmark the official links for each project to avoid interacting with scam sites. Defillama has provided all the essential links for each project, as shown in the picture. Take note of them and refrain from googling a project each time you want to visit their platform, to avoid engaging with scam links.
As a newbie, identifying promising upcoming projects before they experience a surge in value can be quite challenging due to the substantial amount of noise in the cryptocurrency world. However, there's no need to worry. The research tool you should consider adding to your toolkit is known as ‘Step Finance’. Being a dedicated follower of Solana, I personally view Step Finance as a crucial resource that assists me in discovering potential projects developed on the Solana blockchain.
Step Finance is known as the "front page of Solana". It serves as a portfolio dashboard that allows users to monitor and manage their DeFi activities across the Solana ecosystem. As a newbie, there are several features on Step Finance that you need to take into account when conducting research on a project. We will be looking at some of these features below:
Identifying Trending Projects:
Step Finance assists in presenting a list of trending projects within the Solana ecosystem. As a newbie, you are encouraged to explore these projects to pinpoint those with significant potential and worthy of investment. It's essential to evaluate such projects to determine whether there's potential for a surge in price value over the coming days, weeks, or months. This approach ensures that you stay well-positioned and seize earning opportunities without missing out.
Evaluating Project Liquidity and LPs/ Farm:
By utilizing Step Finance, you can ascertain whether a project possesses a substantial amount of liquidity within its liquidity pool. This liquidity facilitates and accelerates the process of buying or selling a cryptocurrency without causing notable price fluctuations. As a newcomer, it's crucial to assess the liquidity pool's size before investing in a project. This step ensures a smooth purchasing experience without encountering potential issues.
Step Finance also offers additional earning opportunities for its users to utilize their tokens and earn yield rewards. Users can deploy their tokens by providing liquidity or participating in farming activities across the different pairs provided. Through these actions, they can generate additional rewards from the tokens they have invested. Instead of merely holding the tokens in their wallets, they can actively engage in DeFi activities to enhance their earning potential.
Knowing how to conduct research is an essential factor in the cryptocurrency space. In order for you to consistently stay profitable and ahead, you need to master the skill of conducting proper research to identify profitable projects and make informed investment decisions.
After going through the guide, I believe that with the information provided, you will be able to conduct your research before investing in any cryptocurrency project. Always take your time and do your research; avoid blindly investing in any project or rushing to invest in projects recommended to you. Always conduct thorough research before making an investment decision.