The information space is saturated with data about cryptocurrency and Web3 projects that seem promising for investments. These projects organize airdrops, ICOs, and other fundraising methods, which are regularly covered by the CP Media editorial team. Such materials always indicate that the information provided is not investment advice, and readers are recommended to conduct their own analysis of any project they plan to engage with. This checklist will help with such an analysis.
Basic Due Diligence for Crypto Projects
In today's world of cryptocurrencies and Web3 projects, it is essential to be able to evaluate their quality before investing. The term "quality" here refers to reliability, integrity, prospects, and risk minimization. To do this, you can use the following checklist.
- Overall Project Concept
The first thing to pay attention to is the overall concept of the project. Can you clearly understand what the project is about? If the description is confusing or too vague, this is already a reason to be cautious. A clear and understandable concept helps to ensure that the team knows what they want to achieve.
- White Paper
For any serious project, the presence of a White Paper has become the standard. This document should thoroughly explain the idea of the project, its goals, and the ways to achieve them. However, it is not only the presence of the document that is important, but also its content. The White Paper should provide a complete understanding of what the project is and what it does, expanding and supplementing the overall concept.
- Roadmap
The Roadmap, or the project’s roadmap, shows the goals and plans for their achievement. This document can be part of the White Paper or exist separately. The key here is clear, understandable, and realistic goals. If the project is not new, it is important to assess how successfully the previously stated stages have been implemented.
- Technical Documentation
Web3 projects are usually based on the principle of open-source, meaning they have open source code and detailed technology descriptions. The code should be available on platforms such as GitHub. If a project hides its code or lacks technical documentation, this can be a sign of unreliability.
- Current Project Status
At what stage is the project? Is it an idea, a prototype, or a fully functioning product? Understanding the current status will help you determine what exactly you are investing in and what additional factors to consider.
- Security Audit
Given the high activity of hackers, it is important that the project conducts regular security audits of its technical infrastructure. Information about such audits should be available on the project’s website. The more renowned the companies conducting the audit, the more reliable the project.
- Tokenomics
Studying the tokenomics of a cryptocurrency project is an important step in assessing its investment attractiveness. Tokenomics includes many aspects that can significantly influence the success of the project. Below are the key elements to consider:
| Analysis Element | Description |
|---|---|
| Functions of Tokens in the Ecosystem | Examine the role of tokens: participation in management, payment for services, stimulation of user activity, staking, and other functions. This helps to understand their demand and usefulness. |
| Token Distribution | Analyze how tokens are distributed among developers, investors, users, and other stakeholders. Unbalanced distribution can indicate risks for investors. |
| Measures to Encourage Holding and Use of Tokens | Evaluate loyalty programs, staking bonuses, participation in project management, and other mechanisms that the project uses to encourage users to hold tokens. |
| Economic Model | Study inflationary and deflationary mechanisms, the issuance of new tokens, and the burning of tokens. This helps to assess the management of supply and demand for tokens, predict changes in their value and sustainability. |
| Major Token Holders (whales) | Determine the presence of large holders and their share of the total volume. Assess the risks associated with their actions and their impact on token liquidity. |
| Plans for Further Development of Tokenomics | Learn about plans for the development of tokenomics, the introduction of new functions and opportunities for tokens. This helps to assess the growth prospects and sustainability of tokens in the long term. |
- Market
Analyze the target market of the project, its main competitors, and the project's competitive advantages. This will provide an understanding of its market prospects.
- Regulation
Find out in which jurisdiction the project is registered and whether it has the necessary licenses and permits for its activities. This is important for assessing additional risks and opportunities related to regulation.
Social Activity of Blockchain Projects
Analyzing the activity of cryptocurrency projects on social media is an important aspect of assessing their quality and investment attractiveness. Social networks play a key role in shaping public opinion, attracting new users, and maintaining interest in the project. An active and lively community is one of the indicators of the project's success and stability.
- Project Team
The personalities of the founders and key employees play an important role in the success of the project. Ideally, they should be known and have a proven reputation. If the team is anonymous but active and respected on social media (Twitter, Discord), this is acceptable. A complete lack of information about the team is a warning sign.
- Community and Communication
An active community is one of the key success factors for Web3 projects. Pay attention to the project's activity on social networks and forums. Empty and recently created accounts are a sign of a dubious project. Sudden cessation of communication also raises concerns.
- Finance and Funding
The presence of large investors is a good sign, as such organizations conduct thorough checks before investing. Study the sources of the project's funding, their success, and the distribution of attracted funds. Financial transparency is a positive signal.
- Partnerships and Collaborations
Find out who the project collaborates with and the nature of these partnerships. The presence of major partners, whether technological, informational, or legal companies, enhances the project's development prospects.
Additionally, always evaluate all possible risks associated with the technologies used, market conditions, regulator actions, and macroeconomic factors. Remember that any investment involves risk, as no one is immune to human factors and unpredictable circumstances.
