How to evaluate a Web3 project?

Despite the fact that Web3 is predicted to bring to web users a whole new conception of anything online, and it does, at this moment, Web3 is just a teenage kid compared to how people’s mindset about the internet. Therefore, as the very first step, a product in web3 should build itself to be fitted into at least one of the evaluated “old” models, which are mostly used in the traditional investment market.

Product Market Fit (PMF)

One of those popular models can be the Product Market Fit (PMF). We did mention this factor in the previous article. Check out our Twitter thread or Medium. This should be the third reminder of how important and game-changing stage that a product can have in its life circle. In general, a product is said to have PMF if there is demand for your product in the market. And it is often obvious to recognize when a product has PMF. However, you can take a look at some frameworks like the Superhuman PMF engine (especially famous) to really know how to analyze with the most professional methods. A project that has achieved PMF can demand a premium as the risk of it failing is greatly lowered. Another thing to keep in mind is PMF can be lost. This could be due to the change of market conditions, better competitors with products that please the market more, technology challenges as well as some other external factors. That is why as an Investor, you will find it necessary to periodically re-evaluate the product you are investing in its PMF.

Thesis-Driven Investing

This is when you basically determine the space of the investments you want to invest in. A clear Thesis can help you decide whether or not you should give other people your money at the early stage of evaluation. Besides that, if you are able to make your thesis specific enough, you can also consider investing in various fields based on what you truly require as an investor. In web3, there are some popular themes such as: • The modular blockchain thesis: This kind of investor believe in the core consensus chain, and all the future developments or product will be attached to it or to its related specialized chains. Ethereum is the most promising chain right now to become the core of the web3 market when the time is right. If you are thinking exactly the same or maybe just finding this thesis makes sense to you, go learn more about this through the writings by Bankless and Polynya.

•Multichain future: You are an investor who sees the potential of chains in their different aspects. You find that the web3 or the world must have more than one leader. Multiple chains with various ecosystems are interconnected with bridges are going to keep things working and work comprehensively. The Cosmos blockchain is built on these values.

•Specific subsection: You might have your thesis created from a particular subsection of crypto such as web3 gaming, DeFi, metaverse, creator communities, music NFTs, etc.

• Seasonal narratives: You are interested in the narratives like DeFi summer 2020, Solana Summer 2021, etc. These narratives are a short-term investment and are hard to catch at the “right time”. However, this thesis can be very lucrative if you are able to hit them with the right shot. Still, wondering about where you want to put your money? Read more!! Thesis-driven investments such as Multicoin Capital has done exceptionally well over the past few years and can help you with your money’s future.

Reasoning by analogy

This is the evaluating method when investors make their investment decisions not only due to the underlying fundamentals but based on surrounding related factors. This can include

It worked in X so it should work in X’: This is a common concept in the traditional startup world. When you are considered a new outstanding model in one part of the world, you will indirectly generate anumber off your local copycats in no time. In web3, this is the concept where the same product is deployed onto a different chain.

It is backed by smart people and personage in the industry, or at least, you think they are. You, in ways of approaching, think and trust that “the people” you are following have done enough research and are often right with their analysis.

Web3 version of the traditional product (web3 Spotify, web3 Discord, etc.) These products can bring a familiar feeling to their user’s thanks to their former experience with the originals. However, it can be dangerous. A service in web3 with its early versions is often overly skeuomorphic. We can get the lesson from how the internet worked with magazines and radio services online. The result is that similar needs of customers are solved in a lot of different forms. Analogical reasoning can help you as a decision supplement, not the decisive one.

Second order effects

While people with even basic knowledge about a field can recognize the obvious consequences of an event, they mostly fail to consider the second and third-order effects of it. This mindset requires the question “and then what?”. And the answers for it or maybe just the ability to answer the projects is the factor you should carefully consider. Some ways this applies to web3 are:

• When regulation is passed, what could be some projects/areas that benefit from it? What could be projects/areas that are adversely affected?
• Depending on projects: does this project have other projects depending on it? Does this project depend on another project? For example, a project that provides insurance for DeFi can only succeed if DeFi needs to be insured, which means having value, which means being a success. And another way around
• Does the project be affected by real-world changes or macro shifts? This includes blockchains that count on Moore’s law-making hardware more efficiently, Bitcoin being used as an inflation hedge, etc. Moats Moats is basically the product’s specialistic that makes it outstanding in the market and an obstacle for other competitors to overcome. Arguably the most important moat in web3 is community. Although every member is online participating and You often don’t talk to them in real life, joining a community of a project’s Discord or Twitter can help you get the vibe of the whole project with its surrounding interactions of the members. And that is where the best way to analyze a community comes from.

Our dearest investors, let’s go evaluate some projects and learn these factors for real!