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In the rapidly evolving landscape of cryptocurrency, thorough research is crucial for investors and users to make informed decisions. This article aims to guide readers through a meticulous approach to evaluating new cryptocurrency projects, focusing on several key aspects: the project's use case, tokenomics, underlying technology, and security measures.
Evaluating the Use Case and Purpose of the Protocol
A fundamental starting point in assessing a new cryptocurrency project is its use case and purpose. Investors should critically analyze whether the project addresses a compelling need or sector. It is essential to discern whether the project introduces innovative solutions or merely replicates existing models. The necessity of a token within the project's ecosystem also warrants examination. Understanding the market size targeted by the project and its competitive advantages over established players is vital in gauging its potential for success.
Tokenomics: Understanding the Role and Value of the Token
Tokenomics, or the economic structure of the token, is a critical factor in determining a project's viability. Investors should examine the token's functions, questioning if it serves beyond a governance role. The mechanisms through which the token accrues value, whether through genuine yield generation or inflationary rewards, need scrutiny. Additionally, understanding the initial token distribution, issuance schedule, and market availability provides insights into the token's potential liquidity and long-term value.
- What does the token do?
- Is it just a governance token?
- How will it accrue value?
- “Real yield” or ponzi-type inflationary rewards?
- Are there incentives to hold this, or is it more of a utility token?
- Initial token distribution?
- How is it being distributed?
- What is the issuance schedule?
- Is it determined by smart contracts or “meat space” agreements/contracts? Available markets? Liquidity?
Technological Underpinnings of the Project
The technological foundation of a cryptocurrency project is another pivotal area of investigation. Assessing whether the project builds on a stable base layer or incorporates novel cryptographic techniques is essential. A professionally crafted white paper detailing every aspect of the project is a good indicator of its technical robustness. Investigating how the project achieves security and consensus, along with the inclusivity of its validation process, can offer insights into its scalability and reliability.
- Is it building on a less secure base layer like Tron, ETC, or BSV?
- Is it introducing any new cryptography?
- Is there a professional white paper explaining every detail?
- Does it incorporate other projects' tech?
- How is it secured? How does it reach consensus?
- What is the validator distribution like? Can anyone participate and validate the chain?
Security Measures and Due Diligence
The final yet crucial aspect of evaluating a cryptocurrency project revolves around its security. A comprehensive audit of the project, preferably by reputable firms, is a significant trust indicator. Verification of the token contract on platforms like Etherscan and reviews by entities such as Llama Risk, DeFi Safety, and others provide an additional layer of credibility. The project team's awareness of any past security breaches, bugs, or controversial practices is essential in assessing the project's integrity.
- Has it been audited? By who?
- Is the token contract verified on Etherscan?
- Has it been reviewed by others like Llama Risk, DeFi Safety, Exponential, De.Fi, L2Beat, CryptoEQ, or others?
- Any known bugs or hacks previously? Rugdoc and REKT database
- Are there upgradeable smart contracts? A multi-sig?
In conclusion, a meticulous and multifaceted approach to researching new cryptocurrency projects is imperative for making informed investment decisions. By critically analyzing a project's use case, tokenomics, technological base, and security measures, investors and users can navigate the complex and dynamic world of cryptocurrency with greater confidence and insight.