A Cheat Sheet for Performing Fundamental Analysis on a Crypto Project in 15 minutes — Part 2/3
PART 2/3 — Circulating/Max Supply, Trading Volume, Website, Whitepaper and Explorers
You can see part 1 of this series here https://medium.com/@Vera_Chain/a-cheat-sheet-for-performing-fundamental-analysis-on-a-crypto-project-in-15-minutes-8ec35066c12e
CIRCULATING SUPPLY/MAX SUPPLY
This is complex and understanding it fully is something we focus on heavily in our audits.
For a quick pass, it’s good to understand:
- What is the max supply of tokens and does it even have one (ETH for example doesn’t currently, while BTC is 21m)
- What is the number of tokens currently in circulation?
The laws of supply and demand have a big effect onthe price so having at least a basic understanding of what the current and max supply for a token is will help you to understand the level of increased demand required to drive the price up.
24 HOUR TRADING VOLUME
This will indicate how liquid the coin is.
Do a quick calculation — (24 Hour Trading Volume/MC)*100
This will give you the volume/MC ratio %.
The higher this is, the more chance you will have of being able to fill orders easily.
As a rule of thumb, ideally it will be 10% or higher but keep in mind this can vary a lot from day to day.
Checking the Daily volume and OBV for the coin on TradingView will give you an indication of whether the past 24 hours of trading volume is usual/unusual and what historical volume and volume patterns have been.
WEBSITE
Take a look at the website of the project.
While having an amazing website isn’t a prerequisite for a great project (Bitcoin for example doesn’t have a website. And no, Bitcoin.com isn’t it!), having a terrible website is often a red flag.
These days any project hoping to raise awareness and traction in the market is likely to invest good time and money into presenting their project well.
If the website looks like a Geocities site from 2003, take that as a bad sign.
The website should clearly, concisely and simply state what the project is. If you can’t understand it within 30 seconds of reading it, that’s not a good sign.
In any business identifying a problem and why your business is the solution is key to gaining traction.
Take the basic Amazon pitch when they started — “books can be expensive, finding the book you want can be a pain. We deliver books cheaper than the shops, right to your door”.
Simple.
WHITEPAPER/LIGHTPAPER
In many cases the Whitepaper is directly linked on CoinGecko but that isn’t always the case.
However the whitepaper (and if it exists, the “lightpaper” which is a summarized version) should be easily found on the project’s website.
Not all projects, especially in DeFi, will have a whitepaper but we would consider this to be a red flag unless there’s a very good reason for it.
Reading through, scrutinizing and understanding all of the claims made in the whitepaper is a key to fully understanding the project.
While it can provide a lot of pointers towards the elements of the project that are likely to help it to succeed, it is also where many of the red flags including; bad tokenomics, unrealistic development claims, poorly defined roadmap etc. can first be identified.
However in the case of doing a quick 15 minute research, reading the whitepaper, or even the lightpaper is unrealistic.
In this case we want to identify two things:
- Is it well written?
- Is it copy/pasted?
Have a scan through it and check a few sections, especially the “Introduction/Abstract” (the problem the project is trying to solve should be understandable within 30 seconds) and the “Tokenomics” sections.
Then copy a random sentence and paste it into Google/DuckDuckGo and search.
Do this 3–4 times.
There should be zero exact matches (except to those linking the original, or quoting it), and those that are close matches should obviously not be just changed a little.
Copy and pasting elements of a whitepaper (except those that are clearly marked as quotes) is a big red flag and demonstrates a lack of effort and understanding by the team.
EXPLORERS
This subject is HUGE and something we spend a significant proportion of our audits covering.
For the purposes of a quick pass of a project, the explorer will tell you:
Is the project an ERC20 or similar (i.e. Stellar Lumen compliant token) or does the project have a mainnet?
Anyone can make an ERC20 token in literal minutes but a mainnet is difficult, time consuming and expensive to deploy.
Being non mainnet isn’t a red flag in isolation, far more than 90% of the market falls into this category.
But it should be kept in mind.
By now you should be around 10 minutes into your 15 minute research into the project and have a much clearer idea about whether or not to invest.
In the 3rd and final part we will be exploring: Markets, Social Media and News.
