In Crypto, How Do You Do Your Own Research? How do you find the right projects? — Missives from the Rabbit Hole #8

Crypto is overwhelming. There are what feels like a million projects and everything is being built all at once; DeFi, GameFi, web3, and every other decentralized app.

On top of all that, there is so much noise about one project being the savior of all humanity and another being a total scam. Buzzwords like ‘metaverse’, ‘play-to-earn’, ‘going bankless’ are all mixed up with a lot of hype and speculation.

So, how in the world do you separate the wheat from the chaff? How do you find the projects that are actually doing the work to build the next generation of the internet?

That would be the holy phrase thrown about by every single credible Crypto thought leader, DYOR. Do Your Own Research.

Easy to say, but what does it mean to do your own research in a world where you barely understand the lingo?

Here is my primer for the uninitiated.

The Guiding Philosophy: Time is Money. Be Thorough but Efficient.

There is only so much I can review and only so many hours in the day. So, I have to push to find the most efficient ways to get the information I need so I can get on to the important thing, actually doing something.

While I am new to the market, I’ve been spending a significant amount of my time amongst the Discords (both paid and free) that are populated with long-term vets in web3 explaining their philosophies, gains, and learnings through trading the market for over the last 4–5 years.

They all agree on a core progression when reviewing any project in Crypto, whether that’s for investing, playing, or joining it.

Phase 1: Review the Market Metrics to Weed Out Any Clear Red Flags

Phase 2: Review the Project Fundamentals To Look for Glaring Issues

Phase 3: Review Their Track Record & See If They’ve Delivered

Phase 4: Review What’s Coming in the Future

Phase 5: Have An Exit Plan — What’s Your End Game?

If, at this point, you don’t know whether to invest, join, or support the project. Your answer is pretty clear, run away as fast as possible.

Phase 1: Review the Market Metrics to Weed Out Any Clear Red Flags

Step 0: If you’re not sure what specific project you’re exploring but would like to whittle it down. You have to start at Market Cap.

This is where you need to screen out the thousands of potential tokens for the ones that actually fit what you’re looking for.

Here are the buckets:

• Micro-Cap — Less than $50 million
• Small-Cap — Less than $1 billion
• Mid-Cap — $1 billion — $10 billion
• Large-Cap — $10 billion+

If you’re looking for what each of them means and more of the basics, check out this article.

So, now you’ve decided what kind of risk tolerance you’re happy with and what kind of returns you’re looking for. Now, to filter for them.

On CoinMarketCap, you can filter specifically for the Market Caps you’re looking for

In this example, we’re going to be looking at the micro-caps that give those juicy 10x+ returns people are always talking about. So, we’ll be looking for market caps around $5M — $10M.

Why is this?

• It’s a lot easier for a token with great fundamentals to move from a $5M market cap to a $50M market cap than for a $20M market cap token to break through to $200M.
• I’ve kept my bottom at $3–5M because I want there to be enough information to kick the tires on the project and get a feeling for it. I’d recommend it unless you have some insider information on the project.

Step 1: Understanding the Trading Volume.

Trading volume is a great indicator of whether the token itself is healthy. Whether it’s being used for anything and exchanging hands consistently.

A token without a high trade volume or one that’s way too large is a clear indicator that it’s bogus or there are issues.

The general guidelines I’ve seen repeated are as follows:

• Look for a 24 hour volume ranging between 10% — 50% of the Market Cap.
• In general, there should be a turnover on the Market Cap every 2–6 days.

Also, check the volume and see if it’s steady. Rather than booming and busting. The former normally means healthy versus the latter meaning shady.

Step 2: What exchanges is it listed on?

Do they trade on reputable exchanges? Are there multiple exchanges?

If a token only trades on Decentralized Exchanges like Uniswap or Sushiswap, be extra careful. Because Decentralized Exchanges don’t regulate what tokens are put on their exchange (hence the decentralized part). So, scam tokens DO exist.

Second, you want to see multiple exchanges having a decent amount of volume of trading (unless the project is hyper early. These usually do live on only a few exchanges, sometimes only one)

Are they large enough to give a bunch of people access to the token if it begins a run?

If a token doesn’t have access to a large exchange, the room for its upward momentum gets heavily stunted. Why? Because if people can’t get to the token easily and put their money in, you’ll have a much smaller group of people to expose it to if it does pop.

Use CoinGecko for this. You’ll see the reputability of these exchanges.

Phase 2: Review the Project Fundamentals To Look for Glaring Issues

By Fundamentals, I’m referring to the answering questions like the following:

• Who is on the founding team → Are they experienced? Are they pseudonyms or real people? Do they have a healthy mix of developers to build the actual technology?
• What is the Token Allocation of the project? → Are they hoarding a lot of the tokens for investors and the founding team? Is there a risk of them dumping all of them as the price goes up or are they leaning towards a heavy allocation to the community?
• Have they gotten a token audit? → Did a third-party verify their whitepaper and declare it sound? [More Info here]
• Do they have any sort of institutional backing from investors? → If they do stumble in building this new technology (understandable..), will they have the funds to continue and work their way through their roadmap?

Use places like Messari + Binance Research + ICO Drops to understand what’s been going on with the project.

Your goal is to get a general idea of what’s been going on with the project. You can see a lot of things very quickly:

• What is their value proposition?
• Who are their investors?
• What are their token economics?
• What is their technology?

Take all of that information and write down any questions you have as you go through. Note down the big things you notice that set them apart for you.

NOTE: This is all backward-looking data, so don’t be totally turned off if the information might be a bit out of date or there isn’t anything if it’s a very small project.

Look at who holds the token allocation. If there are big whales with a significant chunk, that’s a big warning signal. They can dump the tokens if the price rises and cash out, leaving you with a bag of money.

• You’re looking for projects that have a lot of their tokens in circulation and in the hands of the community. Not the founders, investors, or big whales.

An example of a great token allocation. YGG.

Look at the Project Team:

• Is the team heavy on developers who are actually building the project? Or is it heavy on marketers businessmen who do the shilling part of the equation?
• Do they have experience in the Blockchain or in Gaming? If not, red flag.
• Check out their LinkedIn, Twitter, and GitHub to get a feel for their activity, involvement in the community.

Look for people with industry experience, actual technical experience, connections to the networks needed to build attention, and experience actually scaling a business.

Phase 3: Review Their Track Record & See If They’ve Delivered

Go to their blog, website, and social media to understand what the activity has been on the project.

• Any partnerships with reputable players in the Blockchain Gaming space?
• Any funding from reputable VCs?
• Are they releasing information about their development? Regular updates?
• Are they engaging actively with the community? Doing AMAs? Providing Giveaways? Showing investment in building a well-rounded game?

Watch interviews at a quick scan speed.

• I’ve found that Youtube interviews, Twitter videos, and the like are so useful in understanding what the founders are planning on doing with the project.
• It also is a great way to answer a lot of the open questions you might have.
• Tip: Watch them in chronological order and run them on 1.5x speed. Listen for the major points and see how the project has been developing.

Go to their community and understand if it’s active.

• Community is near the #1 thing that almost all of the most successful Blockchain Gaming and broader projects have had. It’s not hard to build a lookalike of a successful project but it’s super hard to build a community from the ground up.
• It also takes a lot of time. It shows the dedication the team has to their players and shows that they’re taking community sentiment seriously.
• From a business perspective, a strong community means a deep pool of advocates who are going to give the project free marketing and defend it on all platforms. An invaluable advantage for building hype and having staying power.

Lastly, look at their Whitepaper. Read about their goal, how they plan on getting there, and check the following to verify the information you’ve seen elsewhere.

• Tokeonomics -> For games, do they have a clear way for people to earn tokens, burn tokens, and use them? If one of those is missing, there’s a high likelihood the game’s economy will have very volatile booms and busts.
• Gameplay Loop (for GameFi) -> Is the game even fun? Would you play it if it was free?
• Long-term strategy → A lot of these games begin very barebones and have plans to add in functionality over time like mini-games, land ownership, more sophisticated trading, etc. Do they do this?

You don’t have to write a research paper on it but do a bulls**t check. Does it make even basic sense? Is it just fluff? Do they make the game fundamentals clear?

You’ll find quite a few that just have very vague platitudes and very little detail baked into them.

Phase 4: Look What’s Coming the Future

Look at their roadmap.

Example from Illuvium’s whitepaper

Questions to Ask:

• Is it detailed or vague?
• What were the previous steps in the roadmap? Did they get completed on time? Did they get delayed? Check Social Media and their Blog to see.
• What is coming up? Are they preparing for it? What is the community saying about it on Discord, Twitter, etc?

Give a cursory look on CoinDesk, DeCrypt, or CoinTelegraph to see if there was any news about the project — might not always be there but good to check anyway.

Phase 5: Understand Your Conviction & Have An Exit Plan

Understanding Your Conviction Level

In this space, you can do all of the right research and still end up with a project that tanks. With an industry that’s so nascent, failures come with the territory.

So, at the end of the day, you have to look at the project or game and decide if it excites you.

• Does the community seem like one you can be a part of for years to come?
• Does the gameplay look like something you’d personally love to play?

If not, then be wary. You’ll probably panic sell when the price goes down and lose out on it before it begins to really hit its stride. Or the volatility that’s inherent in Crypto Gaming right now will give you daily anxiety.

Having An Exit Plan Before Investing Any Money — Answer these questions. [Thank you to Oldman1 (Mark) for providing this.]

Step 1: Outline the things that could go wrong and what your expectations are for the project ahead of time. If they are not being met, be ready to cut your losses and stick with projects that execute.

Step 2: Know how you’re actually going to exit. A few options:

• The token raises 100% take your initial. ($100 r. $200-$100=$100) Your moon bag now equals your original investment. Let it go from there.
• Take out 10% every 10% it rises. ($100 r. $110-$10=$100) Continual. Moon bag always equals initial.
• Take 25% out of every 50% rise. Keeps more initial in for a longer time. Stop at initial or keep pulling. ($100 r. $150-$25=$125/$125 r. $187.5-$25=$162.5/$162.5 r. $243.75-$25=$218.75/$218.75 r. $328.125-$25=$303.125) Moon Bag 3X initial. Longer/riskier.
• Take 50% out on 25% gain and 50% gain. ($100 r. $125-$50=$75/$75 r. $93.75-$50=$43.75) Secures initial sooner. Smaller moon bag. Safer.

It’s easy to get caught by anchoring bias otherwise and lose all of your money. Have a plan to both get into a new project and a plan to get out.

Seeing It All in Action: A Case Study

At the end of this week [12/3/21], I’m going to release a case study of all of these steps with a project that I’m going to be doing research on.

If you’d like to check out the example, subscribe to my newsletter!

Lastly, a huge thank you to a few people who made this infinitely simpler than learning it all from pure experience:

• Brian Jung — His Discord, ‘The Jungle’ is a phenomenal resource for those who are just learning the ins and outs of how to trade, invest in, and vet projects in Crypto.
• Coin Bureau — A channel that spends way less time shilling and hyping projects and way more time giving useful analysis, tips, and guidance.
• Reda (Twitter) — Someone who really really knows what they’re doing and gives a lot of it away for free. Member of the Jungle Discord.
• Oldman1(Twitter) — His documentation in the Jungle was the single most valuable stack of notes I could have gotten started with when diving in to the deep-end of alt coins.
• Athena (Twitter) — Really understands the market, gives a lot of information for free on Twitter, and is starting her own NFT collection. Check her out and if you want to sit with her for a weekly livestream, she’s also on ‘The Jungle’.