The basics of the Due Diligence process.
The cryptocurrency market is full of incredible promise and is home to some of the best-performing assets of the last decade.
But navigating the space and picking out the truly interesting projects is a skill that takes some development — particularly for those with limited experience in cryptocurrency investments and research.
To help you determine whether a coin represents a truly sustainable project or a failure in the making, we’ve put together a comprehensive guide of research tips.
Here, we’ve laid out some of the strategies we use for Ignition when performing due diligence for potential launches on the platform, to help our community make informed decisions with every IDO launch.
Want to watch in video format? Kyle, PAID CEO, shares these same points on his youtube channel:
Understand the Fundamentals
As with all things, it’s important to be properly informed before you are able to confidently make a judgment about something. This is particularly important in the cryptosphere, where wrong decisions can have costly consequences or result in missed opportunities.
Fortunately, there’s a wealth of information available to help you get to grips with the fundamentals before performing your own risk analyses.
Cryptocurrency news outlets, like CoinTelegraph and NEWSBTC for example, represent a simple way to gain a broad understanding of cryptocurrency trends and current events, helping you build a solid foundation upon which you can base your further investigations.
For a more structured look at the industry and its facets, consider taking a course. Blockgeeks, for example, provides a range of courses to help you get up to speed with blockchain and cryptocurrency, as well as related topics through carefully curated courses. These range from beginner to advanced difficulty, helping you go from zero to expert in no time.
For more specific or advanced data, check out Messari or other research entities which provide curated information from research analysts. These can be used to get both a broad overview of the market as well as more specific details on certain coins/projects.
Moreover, platforms like LunarCRUSH can be used to get a quick snapshot of the performance of various cryptocurrencies, thanks to its aggregated analytics solution. This uses a plethora of data such as social volume, market volume, volatility, and more to provide a quick overview of the market.
It’s often a good idea to take a step back and take a birds-eye view of the crypto market — after all, the success of projects can depend on the overall sentiment in the crypto space
Projects that would otherwise fail in a bear market can succeed in a bear one, while truly stellar projects might only demonstrate mediocre performance in a bear market, but achieve stratospheric returns in a bull one.
Pick the Right Sources
One of the simplest ways to find potentially promising coins is to search popular data aggregator platforms like CoinGecko and CoinMarketCap. Here, you can easily sort cryptocurrencies by their performance, market capitalization, trading volume, and more to spot interesting candidates.
From here, you can get a range of further data about the project, such as where it’s trading (high vs low-quality exchanges), its historical value and trading volume, as well as its current supply statistics.
You may be able to immediately spot undervalued and overvalued projects using this basic data, but you’ll likely want to go a few steps further to validate this.
This might include searching crypto Twitter to see if it’s been mentioned by any prominent names that have a history of accurate calls. In particular, pay attention to in-depth analyses and technical reviews — these can provide a wealth of useful information.
We recommend only using non-biased information sources, since these will provide black and white data without biases that might affect your judgment.
Check its Development Status
One of the best ways to gauge the long-term potential of a project is by checking out its Github. This will help you quickly identify whether a project is simply vaporware or an actively developed project with regular commits and publicly available code (potentially) spread across multiple repositories.
For those with a development background, this also gives you an opportunity to dive into their code to examine its quality and assess the languages they’re building with. In some cases, the project’s Github may be inactive — which could be because either no development is ongoing or the project is building in stealth. In this case, consider reaching out to the project directly to see what’s going on.
Look for an active Github with regular commits, and consider an inactive Github as a prompt for further scrutiny.
For those with a less technical background, you can also check out a project’s blog, as this may have technical updates that are easier to digest. For example, for PAID we try to ensure our community is up to date with our updates for the PAID DApp.
Scrutinize its Team
The team is arguably the most important part of any project. After all, they’re responsible for bringing potentially novel ideas to life, onboarding users, and turning the project into a sustainable business.
But each team must be built on a strong foundation. Are the key team members successful in their own rights? Do they have experience developing blockchain-based products? Is the team sufficiently stratified?
In particular, we look at whether a project has capable developers on board to build the product, as well as a competent CMO to market it. Business development and organizational staff are also important since these can be crucial in ensuring growth and adoption.
This vetting process can also extend to the project’s advisors — since these are tasked with helping to guide the project and maximize its odds of success.
A public-facing team is always a good sign, use it as a chance to delve further into the team’s credentials. As always, taking the time to fact-check and cross-reference can be beneficial in separating the suspicious from the truly promising projects.
Who Are Its Investors?
Before investing in any project, it’s often a good idea to take a look at some of its earliest backers, to see whether any well-reputed and established names have already given the project their seal of approval.
Look out for well-known and trustworthy brands and VCs in the crypto space, as well as for value-adding investors that will assist with maximizing the potential of the project. Consider whether the early investors are likely to be long-term supporters, or if they’re simply looking for a quick exit.
Importantly, long-term investors can add significant value to the project — potentially helping out with partnerships, marketing, growth, and more.
Gauge Their Socials
Medium, Twitter, YouTube, and more can be an excellent source of information that can help you with identifying whether a project is likely to be a success or failure.
The range of data you can find on these platforms can vary considerably, but pay particular attention to whether the project goes into any technical depth about what it’s building, and whether there are any indicators of engagement and enthusiasm from its community.
This can indicate that the project clearly understands the technical challenges of what it’s building, and has a ready and waiting customer base.
Some of the ways to go about this might include checking the number of Twitter followers and their usual engagements on tweets. As well as the size and activity of their Telegram/Discord community, and more. A large following indicates good traction, but beware of projects using suspicious methods to inflate their engagements and followers.
Token Utility and Metrics
Regardless of why you’re planning to invest in a token, odds are if the token lacks any meaningful utility, it will fail to succeed — particularly long term.
With that in mind, checking out the token’s utility is an excellent way of determining whether it stands a good chance at achieving adoption — whether that be near or long term. This can be done by looking into their website, whitepaper, and other resources.
Pay attention to whether the token is a necessary part of a project or whether it was seemingly forced in with little to no purpose or utility. If it’s the latter or the details on what the token is used for are vague or absent, this can be considered a red flag.
Beyond this, analyzing the token metrics can help you spot attractive tokens — particularly looking at factors that might affect its rate of inflation or sudden changes in the supply/demand balance, e.g. token unlocks for private investors.
You might always want to look at how the token supply is distributed. Is the token sufficiently decentralized? Does the project have enough tokens in reserve to contribute to development costs, marketing, and more? If not, how will it fund its business development?
Make the Most of YouTube
YouTube can represent an excellent resource to get both a broader view of the market as a whole, as well as some more granular detail about specific projects and upcoming launches.
However, it is important to ensure your sources are both knowledgeable in the space, and non-biased. You might achieve this by subscribing to YouTubers with an excellent track record of successful picks, while avoiding those that only recently started up or are known to overtly shill low-quality projects or outright scams.
One of the simplest ways to get a grip on the latest up-and-coming projects is to simply check the lineup offered by your launchpad of choice.
For example, at Ignition, we perform extensive due diligence on every project we launch — using an extensive list of criteria and checks to separate the truly promising projects from the duds.
Likewise, SuperFarm’s SuperStarter platform and DAO Maker’s DAO Pad also tend to host launches for highly vetted, promising projects.
This is an excellent way to expedite your research by cutting out some of the legwork needed, while also providing an opportunity to invest in projects before their public launch at the best available prices.
While we also invest in the majority of projects listing on Ignition, we still recommend performing your follow-up research, since no pick is truly infallible.
We hope that we have provided an eye-opening look at some of the methods you can use to potentially spot the next big thing in crypto and avoid likely failures.
With that said, it’s important to bear in mind that no system is 100% bullet-proof. There are always exceptions to every rule and sure-fire winners aren’t always easy to spot. Likewise, there is a range of techniques dubious projects can use to appear more legitimate than they actually are.
As such, we urge you to use caution when investing in any project. Proper due diligence should massively improve your success rate, but by no means guarantees it. The industry is full of opportunities, but it will take a keen eye and proper due diligence to spot them consistently.
PAID Network seeks to redefine the current business contract, litigation, and settlement processes by providing a simple, attorney-free, and cost-friendly DApp for users and businesses to ensure they #GetPAID wherever they are in the world.
PAID technology leverages Plasm to operate on both Ethereum and Polkadot ecosystems. PAID makes businesses exponentially more efficient by building SMART Agreements through smart contracts in order to execute DeFi transactions and business agreements seamlessly.
PAID streamlines backend legal operations with SMART Agreements, so that projects can focus on making their brand bigger and better.
For any questions for the PAID network, please feel free to reach out to us on: