I’ve been in the blockchain industry for a year and a half now. I started as an Initial Coin Offering (ICO) marketer, but the rush of investing and gains potential quickly became contagious.
So, I dove deep into learning about it and was on the relentless path of discovering all those new exciting crypto assets. At some point, things got crazy, and, as a big fan of diversification, I became a happy holder of more than 300 various tokens.
Of course, many of my decisions were poor. But all those mistakes allowed me to come up with a clear and straightforward framework for analyzing tokenized assets more efficiently and finally properly manage my risks.
For some time, earlier this year, I also worked at a venture capital fund as a crypto asset analyst utilizing this very same approach that I am about to share with all Block Explorer readers.
Don’t get me wrong, even the smartest people on Earth, including the most influential investors in Silicon Valley, have made mistakes. Just think of those who passed on Airbnb or Uber or those who poured money into Theranos.
Fasten your seatbelts. And let us introduce you to our GGECTRA crypto assets quick evaluation approach.
GGECTRA is an abbreviation and stands for:
Now, let’s break the concept down into the smaller chunks.
1. What’s the Growth Potential?
The first question to ask yourself is: can this project scale up? Does it have the potential to be used by millions of people or businesses? Can it grow from a small, experimental idea into a true use-case?
The next question is about competition. Are there similar projects out there having success? If so, what does this crypto asset do differently that could tap into that growth?
Finally, ask yourself how much revenue and profit this project can generate. Many startups don’t make a penny in profit for years, but is there a clear business plan for growth and revenue?
Evaluate the potential growth opportunity from 1 to 5, where one is poor, and five is excellent.
2. The Project’s Github Activity
Many of the blockchain-based projects are supposed to be transparent and open source. And they should be. Since this new way of investing is open to thousands of amateur investors from all around the world, the very least they deserve is some transparency to track on what’s going with their funds.
Thankfully, many of the projects in the field are on board with that, and the source codes are freely available on GitHub. One of the best ways to track GitHub activity for crypto projects is Cryptomiso.
It ranks the projects that are most active and provides visitors with important stats (like source code, programming language, number of contributors, etc.), and, of course, directs you to the project’s Github directly.
Let’s say we want to estimate what’s going on with Aion, the project that is building a product for solving famous blockchain scalability and interoperability problems. Looking into the team’s Github account, we can see that there is a lot of action going on and new changes are made even as I am writing these words. That’s an excellent sign.
On the contrary, if you came across the project with little or no Github activity, you can rate it as “poor” with no hard feelings.
3. The Crypto Project’s Execution
I evaluate this metric based on the milestones achieved and judging by the company’s roadmap execution. Following social media accounts and corporate blog updates is a tremendous help in this case.
If you are out of time just briefly check the Twitter feed and see what kind of updates are posted.
If you see tweets mentioning development reports, new impressive partnerships and delivering yet another milestone from the roadmap – that’s a bold “yes!”
But if there are simply “thank you for being with us” messages, new exchanges listing announcements, or some very distantly-related quotes and reposts from big Twitter accounts, that’s not a good sign.
4. How to Rate the Crypto Project’s Community
I’ve discussed the importance of crypto communities in a previous post. A good community can make or break the success of a particular asset or project.
Evaluating this metric is pretty straightforward. Browse the project’s social media accounts and check the followers. Some things to be aware of: the project might have a pretty decent following, but not so much engagement. That’s not good.
Also, the large volume of retweets and likes might indicate that the company has generous bounty rewards. So, while making your research, don’t forget to scroll through the comments and see if those are making sense. Don’t be too excited over bare numbers.
For instance, the Aion Twitter account has almost 71,000 followers, but engagement rates are not very high. So, I’ll rate it as “good”, not “excellent.”
5. How to Evaluate a Crypto Project’s Team
When evaluating the team, I try to look first and foremost at the Chief (C)-level employees and their expertise: Chief Executive Officer (CEO), Chief Operating Officer (COO), Chief Technology Officer (CTO), etc.
I browse through their LinkedIn profiles and see if they have relevant experience and connections in the industry that they are trying to disrupt.
Since I’ve been traveling around at some conferences in the field, it’s relatively easy for me to evaluate how well connected the person is. And, in some cases, even the working ethics of the particular person. I scan through the list of shared connections and make my judgments.
If you don’t have that luxury yet, you can browse through the person’s endorsements. Let’s say Andreas Antonopoulos pats someone’s shoulder for their knowledge of bitcoin, then it’s a winner.
Let’s look into the STACK! project. The company is trying to build another cryptocurrency with the goal of mass adoption, with a great wallet and easy crypto payments right from someone’s smartphone. Not a unique aspiration, but STACK!’s Chief Executive Officer has immense experience in the field.
And quite a lot of quality connections in the blockchain department. You get the logic.
One thing to remember when assessing the team: just as with social media following, quantity doesn’t mean quality. On numerous occasions, I came across profiles that blinded me with impressive numbers of endorsements, just like the profile on the picture below (and let’s keep the name and the project a secret).
However, digging deeper into the list of endorsers it’s obvious that those are not real. In some cases, if I have my doubts about the team member, I would also reach out to former colleagues to clear up my reservations.
6. How to Measure the Risk of Cryptocurrency Investment
As for the risk evaluation, it’s a mix of various factors that you have to keep in mind, and this list might be adjustable. For example, I look into tokenomics, especially at the token’s supply and distribution.
Huge supply often means less room for growth. And if a large chunk of all tokens reserved are for the team with no mention of the vesting period (how long the team must wait for scheduled token distributions) – it’s a huge red flag. Anything more than 10% raises some serious question marks for me.
Then there’s the legal structure and licensing. Is there zero clarity? More questions.
Overall it’s a very important, but somewhat subjective metric. And there’s a lot to process, based on your own risk appetite and investment strategy.
Jumping into the project with the sketchy team? Risky!
Investing even if there was no development activity? Risky!
And so on, you’ve understood the reasoning.
7. How to Calculate the Average Score?
The average score is pretty much self-explanatory: add up the values of all the metrics and divide by six, the number of evaluated parameters.
You will end up with a number you can use to compare against other projects. Yes, it will be somewhat subjective. But you still have the logic behind it rather than buying assets based on a hunch. Basing your judgments on such numbers will save you from making any snappy decisions. Just stick to the process and try to be less emotional.
Do you have any special tricks to identify great investment opportunity when evaluating a crypto project? Go ahead and share it in the comment section below.
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