How to do your own research in DeFi
All DeFinancial advice you will ever need.
As a newbie in the DeFi community, you must do your research before investing in any crypto projects. The term DYOR—Do Your Own Research—is widely used amongst crypto enthusiasts on social platforms. You’ve heard it before, and you’ll hear it often as you continue your journey in Web3.
But what does doing your own research really mean? Where do you start? What sources should you trust? And how much research is enough research? In this article, we’ll guide you on the systematic approach to conducting your research in DeFi.
Choosing the right cryptocurrencies to invest in
There are currently almost 20,000 cryptocurrency assets issued for trading across 526 centralized and decentralized crypto exchanges. How do you determine the best options to invest in at a time?
Let’s look at a shortlist of key elements to consider when evaluating a potential crypto investment.
o The use-case and utility
o The community
o The team behind the project (developers, partners, influencers, advisors)
o Market cap
o The white paper and website
o The vision and roadmap
o Trading volume and liquidity
o Circulating supply vs total supply
1. The use-case and utility: Utility refers to the benefits that the community who invest in the project or hold the token will have access to. It usually consists of the access to utilizing the solutions that the project offers. For instance, if you buy and hold FIL (Filecoin) tokens in your portfolio, you’d be allowed to interact and make use of their decentralized storage network.
2. The community: Every crypto project is backed by a community across social platforms—Twitter, Telegram, Discord, Reddit, etc. It’s essential to find out how large the community around that project is, get in touch, and join these communities to find out what they are saying about the project. This will show you how many users believe in the project and could be prospective investors in the future.
3. The team behind the project: DeFi projects are built by a team that includes developers, designers, advisors, partners, and influencers. Do a background check on the members of the team. Making sure all the members are known people on the space and have not been involved in any form of scams and rug pulls is essential to determining a solid project.
4. Market cap: The market capitalization of any crypto asset refers to the total value of the cryptocurrency. This value is calculated by multiplying the total number of coins or tokens in circulation by the current market price of the asset. Additionally, the market cap of an asset serves as a guide for investment decisions and a metric to measure the size and value of a token.
5. The white paper and website: A white paper, also written as "whitepaper", is a detailed document usually issued by a company or decentralized autonomous organization to promote or highlight the features of a solution, product, or service that it offers or plans to offer. It cites the utility of that token and also how the team intends to achieve the solutions. The white paper is usually released on the project’s official website, therefore you have to ensure that the project has a standard and properly optimized website.
6. The roadmap and vision: A roadmap is a business planning publication that outlines the short and long-term goals of a particular project within a flexible estimated timeline. It tells you the vision of the project, the various stages in development, and also the timeframe between these stages.
7. Trading volume and liquidity: The trading volume of a crypto asset refers to the total quantity of tokens or contracts that have been traded (buy and sell) within the daily timeframe. Finding a token with high daily trading volume tells you how much investors are buying into the project and this shows how investors feel about the project. Investing in such a project at that time might be a lot more profitable as price usually spike as investors buy more tokens. Also, it’s essential to check if that token has liquidity locked in a pool. Liquidity refers to the ease with which one can convert a token for cash at the current market price.
8. Circulating supply and total supply: When a company creates a particular number of tokens, only a portion of it is made available for circulation. Circulating supply refers to the number of coins or tokens that are available for exchange and are being traded in the market. While doing your research, find out how much of the total supply of tokens is available for trade and circulation. What you’re looking to check this for is to find out if the total supply has been bought by investors because it signifies that the token is overbought and price is likely to dip.
Questions to ask that’ll nudge you in the right direction
When conducting your research to determine your next crypto investment, you should have a shortlist of important questions that a project team has to provide solid answers to before you invest. Here are some questions you could ask or find out about while doing your research:
What problem is this cryptocurrency proposing to solve? Is it a real problem?
What is the market cap of this cryptocurrency? What is the risk profile?
How unique is it compared to its competitors? How different is the cryptocurrency from its closest competitor?
What team developed this project and what are the plans for future development?
How reputable is the team? Do they have a history of past success?
How large is the community willing to adopt this crypto’s use-case?
What are the legal regulations about this crypto in my country?
How are the project’s marketing and social media presence?
How are they trending on Google and social media?
What are the key features of the cryptocurrency’s blockchain?
How well-defined is their roadmap?
Are there any red flags? Any skeptical views on the project?
On what exchange can you trade the crypto on?
What is the trading volume of the cryptocurrency for the day, week or month?
Who’s a reliable source and who isn’t?
In the crypto world, it’s important to be selective about what sources you seek information from and who you listen to. It’ll be futile to spend hours on research from unreliable sources—sources that aren’t credible or have been paid to mislead the public. So we’ve outlined a guide you can use to evaluate various sources of information in crypto:
Are they well known in the industry? What does their track record say about them?
Is the website you’re reading an established source? Sticking to the most popular news sites is a good way to make sure you’re getting quality information, but even then, don’t believe EVERYTHING you read.
NOTE: ads are not reliable information.
Is the person you’re listening to being paid to advertise that project? Never assume paid advice is honest advice. Many crypto personalities or influencers are sponsored by exchanges or have stakes in projects. Seek out people who are upfront and honest about their own biases and opinions.
Is the person’s advice or opinion balanced? Do they give both sides of the story? Things are rarely black and white, and the best crypto info sources will give both pros & cons about any given project.
As you conduct consequent research on tokens and crypto projects, you’ll undoubtedly find some top favorite Twitter/Youtube personalities. Finding someone you trust and can resonate with in the crypto space is a good thing, however, you should understand that it’s not advisable to get all your info from one source. There could be hype around the wrong project and people could be wrong from time to time.
Therefore, doing your research entails using a variety of sources and tools—news, community forums, social media, YouTube, etc.—to help get a wider perspective. Essentially, the more opinions and information you engage in, the more confident you might feel when deciding on your next crypto investment.
 |
|