Understanding and analyzing the basics of what makes a good enough project and what has enough potential are the basic factors that a cryptocurrency investor needs to master in order to determine its intrinsic value and development potential. Analyzing a project will help us make better investment decisions, thereby improving our investment journey. Let's review with Allinstation the typical criteria that form a good project.
Intrinsic value of the project
Intrinsic value is the real value of a project based on fundamental factors, different from market value, to assess XEM the project is overvalued or undervalued. Fundamental factors include: Operational team, product, technology, investors, operating model, financial indicators, development stage, tokenomics, business philosophy, community, market context, competitors, etc.
Combining the above factors to synthesize the story that the project is doing and building helps us better understand the project's potential and when is a good stage for us to invest.
Factors to evaluate a good project
Project ideas and vision
The first factor to XEM is the idea and vision of the project. Projects developed based on new and trendy ideas will have a higher chance of success. However, not all new ideas are good, it is necessary to XEM whether the idea solves a real problem and is feasible. If the project is a trendy idea, consider short-term investment. Trend-following projects that are saturated are often not highly appreciated because they lack creativity and are short-term.
For example : Solana 's positioning is a high-performance blockchain platform, focusing on speed. For a Layer 1 blockchain, the most important priority is to have a large number of users participating in the ecosystem. Solana 's strategy is to use meme and build to attract dApps to build on the SOL network, typically the Airdrop and launch of Jupito, helping this network ecosystem become more and more convenient. It can be said that in 2024, the Solana system was very successful with the strategy of using meme to attract cash flow to the system. This is a very bold idea and has achieved a lot of success.
Read more:
- Is the Solana Ecosystem Really Potential? (Part 1)
- Is the Solana Ecosystem Really Potential? (Part 2)
Products and Operating Model
The project's product must solve a real problem and be feasible. It is necessary to study the project's operating model to understand how it operates and the practicality, application, feasibility, novelty and trendiness of the product. In crypto, projects with practical and innovative products and operating models such as DEX exchanges are essential. When they were first launched, the features, operating models and technology of DEX exchanges such as Uniswap solved the DeFi problem very well and from there DeFi Summer was born.
However, there are also many successful case studies about the model of a "ponzi" project but still have certain success, but the risk when investing in these projects is higher when ponzi develops very quickly but also declines quickly, typically the model of Luna - UST , when launched, the community was very FOMO but the loophole was very large, causing the FOMO only for a period of time and then died out. Currently, reStaking is XEM a quite successful trend, but in my opinion, there is still a very strong ponzi smell somewhere. Therefore, understanding a business model, how it works, what needs and problems it solves and whether it is sustainable or not is a prerequisite to evaluate a potential project or not.
Read more: What is reStaking ? Why can it help create extremely high Ponzinomic models in Bull-run?
For example : Research the project's product to answer questions about the project's goals, the problem the product solves, and the feasibility of the project. A typical example of a project that is considered good is LINK when the project's product is about Oracle, something very important in Blockchain when LINK's product is used by many other projects. Some projects can be ponzi models like Luna, which creates a very high FOMO when giving users a very high APY at that time but does not calculate the high price volatility of the market, which can cause Luna to no longer pay interest to users, leading to the collapse of Luna itself, followed by a deep market decline in 2022.
Read more: Detailed analysis of the “collapse” of UST and LUNA
Tokenomics
A project’s tokenomics should be clear, transparent, and demonstrate how the Token will be used and optimized. Factors to XEM include:
- Token Allocation
- Token usage
- Token Issuance Schedule
- Deflation mechanism
Because the Token is the part that we investors will hold and the project + investors of the project, so this is a game with many participants, understanding tokenomics will help us know our position compared to other big players, know the stages to buy and whether the amount of Token is being manipulated or held too much by one party or not.
In addition, the Token utility is a quite useful part to observe, according to the supply and demand mechanism, when the Token is in high demand, the more useful it is, attracting users to buy and use the Token , the price will increase.
For example : Binance Coin's Tokenomics with an initial total supply of 200 million BNB, a 5-year unlock period and a Token burning mechanism to reduce deflation, create price increase momentum and retain investors. Another example is the SOL system, the SOL system Token 's main function is to buy and sell memecoins on the SOL system, and SOL has created a meme playground to attract money into SOL => demand to buy SOL increases => SOL price increases, at the same time, Stake SOL to receive Jupiter Airdrop at that time also makes the SOL fomo price increase.
Community
The community is the source of potential customers for a project. A large and loyal community is an important factor for sustainable development when supported by the community itself. Observing how people interact with each other when talking about the project is a way to evaluate the quality of the community. Having a good community also complements the project's media plans very well as word of mouth marketing is very effective in crypto.
For example : The most typical example of a community is memecoins, memecoin cultures are formed thanks to the community supporting the project, believing in the project and buying Token , causing the price to skyrocket. The BOME Token is an example of a strong community when in just 3 days from the time of raising Capital to create the Token , it multiplied more than 10 times and was listed on a series of leading exchanges such as Binance, showing how terrible the power of the community is.
Or most recently, it was the scandal from the Zk Sync Airdrop , because of the lack of transparency and the unfair Airdrop for users that caused the community to turn their backs on the project, leave the ecosystem, causing activities on this ecosystem to decrease sharply.
Read more:
- What is Book of Meme (BOME)? What Made This Memecoin Increase More Than 10X in Just 3 Days
- ZKsync Layer-2 Activity Drops Post- Airdrop
Media and Communications
Communication or community building is an important factor in project development. It is not enough for a project to create buzz and make people aware, but it also comes from how well the projects do in motivating users to participate in their campaigns. Good media and marketing will attract more users to participate in the project, from which the project will develop further. There are many different ways for a project to create buzz, typically through raising large amounts of Capital , which is also a way for the project to create buzz, and the second is continuous appearance on media platforms and crypto communities.
For example : Looking at the recent campaign of projects like Backwoods, a GameFi project that has made a big splash thanks to its attractive and simple gameplay, Backwoods has been very successful in media when it has been making waves and appearing a lot in the gamefi community, being mentioned by many people by word of mouth and then even on other web2 platforms like Tiktok, videos of users playing Backwoods games also appeared.
Read more: What is Backwoods? What's special about the super hot game on Solana ?
Project Valuation (FDV)
No matter how good a project is, how good the product is, how strong the community is, the most important priority for us investors is to make a profit from the investment. So the first thing is to evaluate the project, we should XEM at the FDV index to get the most accurate valuation of the project, then combine it with the project's Capital + tokenomics + market timing to decide XEM the current time is a good time to buy Token or not.
XEM will directly affect our investment decisions, if the project is overvalued at a bad market time with bad tokenomics, it is clearly a bad decision to buy in. The valuation of projects up to now is mainly determined based on the valuation of the fund investing in the project and the "estimates" of other investors.
The price line is what shows the effectiveness of project marketing, people often say, the price line says it all, observing the price line of the project we can know what the players in the game are doing, how they treat this project, from there for small investors like us we can make decisions and follow. However, it does not mean that a bad price line is a bad project, a bad price line is for us to observe and combine with other factors to decide XEM this is the project's strategy or not, from there we can make a plan to buy or ignore the project. For example , APT is a project that was once XEM to have a bad price line when it was Chia by 2, bottled by 3 from the top but then x nearly 5 times from the Dip, users later no longer criticized but even turned back to praise the project.
For example : STRK is a Layer 2 Blockchain project. The funds valued it at FDV of 8 billion dollars. When listed on the exchange, STRK had a price of around 2-2.5 dollars, which means FDV of 26 billion dollars with a total supply of 10 billion Token, a Capital of 2.3 billion dollars at the time of listing on the exchange + with STRK's tokenomics , Token inflation with monthly Token release always increasing => high valuation + tokenomic inflation made buying STRK at that time unreasonable when the valuation was even higher than the investment fund.
Read more: Do low supply high FDV projects have a chance?
Development Team
The development team is the key factor that determines the success or failure of a project. A strong team should have all the important positions and experience in the field they manage. Information about the development team can often be found through social media channels such as LinkedIn, Twitter.
For example : Some famous projects like PancakeSwap are said to have the support of Binance and CZ when they have been listed on the exchange and integrated into some Binance products, this makes us understand that PancakeSwap will be fully supported and is a project with potential for future development when led by an experienced person.
Investment Funds and Angel Investors
A project that has been Capital in by leading investment funds has gone through a careful filter. However, investors need to pay attention to their position and calculate the right time. Not all funds are “good”, it is necessary to distinguish between long-term and short-term investment funds.
For example : Alameda Research, FTX Ventures, Three Arrows Capital are three leading investment funds of the previous Bull-run cycle but went bankrupt.
Roadmap
The roadmap shows whether the project is on track, and reflects the flexibility of the development team. A project with a clear roadmap and sticking to the plan is a good sign that the project is still active and has development momentum. Understand the roadmap
For example , a project with a changing roadmap but still following the product update schedule is not necessarily a bad sign, showing adaptation to market conditions.
Performance indicators
For operational projects, performance indicators such as Market Cap, FDV, Volume, Transaction, TVL, Fee, Revenue, Fork, Github Commit are important metrics that show the performance of the project.
For example : These metrics can be found on statistics websites such as CoinMarketCap, CoinGecko, defillama.
External factors (External influences)
Market context : Market context research helps to assess the practicality and trendiness of the project solution offered.
Ecosystem – Functional Groups : Understand the Shard of the ecosystem, how they work and the importance of each functional group.
Competitors : Research competitors to determine project differentiation and competitive advantage.
Tools to support fundamental analysis
List of some supporting tools: Messari, GoDeFi, project media channels, Crunchbase, LinkedIn, CoinMarketCap, CoinGecko, defillama, Dune, Token Terminal.
Read more: Top 20 Websites for Newbies (Part 2)
