Whether it is a new DeFi protocol, a blockchain based game, or an NFT project, I absolutely love reviewing new crypto projects, searching for those hidden gems and sharing my opinions of then. Although I like the search for new crypto projects, there are lots or projects that are overhyped, don't live up to expectations, or that I simply don't find interesting. In today's post I'd like to share my top 5 Crypto Red Flags that make me hesitant to review a project.
Ethereum Based Products (Transaction Fees)
Before I start this post, I'd like to point out that a project meeting one of my "red flag" criteria doesn't mean I won't review it. It just means that I'm considerably less likely to review it or that my review will be tailored as more of a warning than a review/tutorial. In first spot, I don't like reviewing projects built on Ethereum. I know this can seem like a bit of blasphemy, so I'd like to clarify my reasoning. There are TONS of amazing, wonderful projects built on ETH that I have used in the past and continue to use. However, ETH gas fees are currently so high that ETH is simply out of reach of many average investors. In preparation for this article, I logged into complete a sample transaction on Compound Finance and saw a fee over $30.
ETH is great, and I look forward to doing more ETH based reviews in the future, but for the time being, I feel that the excessive transaction costs put it out of the reach of a lot of people. As I want my videos and articles to be accessible to a wide audience, I tend to look for projects with much lower transaction fees. Of course, I will make an occasional exception for a project that I think really stands out in terms of exceptional value.
Projects With No Whitepaper
A Whitepaper is a crypto project's roadmap that tells the user what the project is, what it does, and how it can benefit them. Without this foundational, guiding document how is a user to know what a project does? Although it is true that many projects will pin messages in a Telegram chat or post a FAQ on their website, I feel that taking the time to compose a formal, structured whitepaper shows that the team is more serious about the project than hastily posting updates on Telegram or an FAQ. Obviously, there are great projects without formal Whitepapers, but in general, I put more confidence in projects with a Whitepaper than those without one.
Projects With No MVP
In the business world, an MVP stands for minimum viable product and is deigned to show the basic functionality of how a product or service works without the cost and expense of actually launching the full product. I think that having an MVP in the crypto space is exceptionally important because anyone can dream up the most impressive crypto project, but putting it into practice is an entirely different matter. I don't need an MVP to have ALL the features of the finished product, but I do like to see that the team has actually built a working draft of the product. Without this, its easy to run into a situation where core features of the product are "coming soon" for months and months....Thunderdome on Alien Worlds, Planet Binance staking missions??
The same could be said of projects that continually delay their roadmap. I realize there are unforeseen circumstances that cause delays, but if a project continually pushes back its MVP multiple times, it makes me loose faith in the project and the team's ability to deliver on commitments.
Obviously, anyone launching a new project should be excited about it, and a certain degree of buzz and hype is necessary for a project to succeed, but projects that grossly inflate their relevance, partnerships, or potential impact are instant red flags for me. One of the most relevant examples of this was Student Coin. Based on their various releases, the coin marketed itself as being endorsed by highly prestigious universities when in fact, there were simply various people at those universities that supported the coin. There's a huge difference between an official endorsement from a university, and someone that works at a university liking a project.
A similar degree of overhype was evident in the Minaret crypto project that I reviewed which claimed that it was 100% safe and users did not even need to DYOR when investing. I don't like to do reviews or giving publicity to overhyped projects, but sometimes I feel it is necessary to do more of a warning review to protect and inform gullible newbies.
Projects with Excessive Team/Marketing Funds
Pre-mining and selling coins to finance crypto projects has become the standard, and although some see this as necessary, it also raises the possibility of pump and dump schemes. When I see a token has a large pre-mine and that most of the funds are being spent on promotion and marketing, it raises my alert levels. I've seen some projects where up to 40% of the supply goes to marketing/partnerships in one way or another which I think is absurd. This is more of a subjective call, and I can't give a hard rule of what constitutes an "excessive" team fund or marketing budget, but just remember that Shiba is currently sitting at the #47 ranked crypto with absolutely ZERO marketing or promotion budget.
As always, I want to point out that nothing in the article is financial advice and a "red flag" doesn't necessarily mean a project is a scam; its just a cause for more detailed investigation. For example, I am a big fan of the Colonize Mars game although the project doesn't yet have a working MVP. However, I've been impressed enough with the Whitepaper and other releases from the team that I have made the decision that the risk is worth it for me . Of course, everyone will have their own risk tolerance and their own criteria for what projects they are willing to invest in.
So, what did I miss? What are your crypto-red flags, and what sets off your Spidey Senses that a project isn't for you? Thanks for reading!