There are 3 Signs a Crypto Project is NGMI
-Large supply overhangs
-Treasuries concentrated in native tokens
-Bad governance practices
A thread on why these hurt a protocols chances for survival
Bear markets = Opportunity markets
But to find the next great opportunities, you must also know which types of projects to avoid
There are three main warning signs to keep in mind when conducting due diligence on a protocol…
Warning Sign #1: Supply overhangs
Many tokens have a low circulating supply which leads to huge discrepancies b/w MC and FDV
A low MC/FDV = A large amount of structural sell pressure
This sell pressure comes from two sources:
-Insider unlocks as team and investor allocations vest -
Token emissions from liquidity mining programs
These not cause a token to only bleed more heavily during a market, hurting morale, but also drains a protocol’s treasury
Warning Sign #2: Native Token Treasuries
The reason why token inflation can drain a DAO treasury is b/c many are highly concentrated in their native token
Per @DeepDAO_io only ~12.3% of DAO treasury assets are in stablecoins
This ties a protocols ability to sustain itself thru a market to the value of its token
This is a problem b/c DAO’s may now become forced sellers to cover expenses
This adds more downward pressure on price and further depletes runway
It may also push DAO's to pursue alternative, riskier forms of financing to survive
This includes OTC-deals to sell discounted, locked tokens to market makers and VCs in which DAO's have little leverage to negotiate favorable terms
Warning Sign #3: Bad Governance Practices
All governance is a mess - But some DAOs have far worse gov practices than others May DAOs are highly centralized, with its token supply concentrated in the hands of insiders
This leads to “governance theater” where insiders ignore, manipulate, or bypass governance to pursue their own ends
We’ve unfortunately seen plenty of examples of this in recent weeks
This can permanently damage a protocols legitimacy and trust within the community
If you are looking for the next great bear market you would be wise to avoid projects who are flashing any of these warning signs
For my more detailed thoughts on each of these red flags, check out the piece I wrote for
Thread over and have a good weekend