You’ve found a project you like and are considering aping in. Before you do, consult this list. Asking these really helps to avoid fool’s gold and to choose better long-term investments in the crypto market.
- Token launch
- Token utility
- Past performance
- Currently relevant questions
- Which tokens does the project use?
- If there are several tokens, why?
- What is the market cap of the token?
- What is the circulating supply?
- What is the maximum possible supply? (more on this in the Supply section)
- What is the Fully-Diluted Valuation?
- Is the token’s supply inflationary, stable, or deflationary?
- Where can you buy the token?
- Why is the token on these specific DEXes / CEXes?
- How deep is the liquidity on these exchanges for the token?
- How high is the token’s volume on these exchanges?
- Who are the main liquidity providers / market makers?
- Are they in for the long term or incentivized via unsustainable token emissions?
- Which parties do you put faith in when holding the token (ie chain, bridge, team, etc)?
- Does the team benefit from the token appreciating?
- Do users (not tokenholders) benefit from the token appreciating?
- Can the project function without a token?
- How the project launched its token
- Why was this blockchain chosen to launch the token?
- Is the chosen chain best for security, speed, or interoperability?
- How old was the project when it launched the token?
- Which token launch method was used?
- How much did the project raise through its token launch?
- What Fully-Diluted Valuation (FDV) was the launch done at?
- How has the Market Cap / FDV changed since launch?
- How does the chosen percentage of initial supply affect the emissions and tokenholder dilution in the future?
- A token’s price is fundamentally determined by supply and demand. Let’s first analyze supply.
- What factors affect the token’s selling pressure?
- How much will token supply grow in the future?
- Who holds the token?
- What % of supply do top 10 addresses control?
- How about top 100 addresses?
- When are VC and Team unlocks?
- Have a large number of coins been lost or burned?
- How much does the community hold?
- How fair is the distribution?
- What is the overall emissions schedule?
- Who do emissions go to?
- What is their behavior (do they sell off instantly or hold)?
- Can you benefit from emissions by staking or LPing?
- Do emissions generate you profit, or just protect you against dilution?
- Why are some released tokens not in circulating supply?
- What will happen when locked (or staked) tokens are released?
- Are there bulk unlocks in community lockup mechanisms?
- Now let’s look at demand, why the token is purchased from the market.
- What are the key drivers of demand for the token?
- Are there other projects users can easily substitute to?
- How did you find out about this project?
- Will other people want this token in the future?
- What is your expected return from holding the token?
- Are there protocol revenues that get distributed to the token holders? (more on this in the Utility section)
- Does the project buy back and / or burn its own tokens?
- Do tokens get destroyed or transferred when used to purchase a good / service from the protocol?
- Does the project have a cult-like following?
- How is the energy in their Discord?
- How active is the project on Twitter?
- How active is the community on Twitter?
- How long have they been this active?
- Will they be as active a month or a year from now?
- Is there game theory driven incentive to hold the token?
- Is there a token lockup mechanism?
- Does it smell like a Ponzi scheme?
- Is there a burn mechanism?
- What the token is used for in the project
- What is the purpose of the token?
- Are you supposed to hold it or use it for transactions / services?
- What percentage of a project’s cash flows are distributed to tokenholders?
- Are cash flows dilutive or redistributive?
- Do you plan to instantly sell or hold onto the earnings?
- Is the token used for governance?
- If yes, how concentrated are governance votes?
- Will your vote make a difference?
- What are the minimum token requirements to submit and escalate a governance proposal?
- Can governance enable or affect profit distribution?
- Are there bribes for governance voting that you can earn from?
- Do the tokens secure the project?
- Can the token be used as collateral to borrow liquidity?
- Token performance since launch
- Is the token correlated with the broader crypto market (ETH, BTC) or not?
- Why would you want to hold the token instead of ETH or BTC?
- How volatile is the token’s price?
- How has the token held up against USD or ETH since its inception?
- Have emissions / staking earnings offset any of the losses?
79, What is the token’s velocity (velocity = transaction volume / market cap)?
80. What’s the difference between current price and the ATH?
- Has the token price been responsive to positive / negative news?
Currently relevant questions
- Bear market things and otherwise relevant stuff you should consider
- Do the tokenomics still make sense in the bear market?
- How has the token been affected by the crash?
- Do the tokenomics hold up during high volatility and other edge cases?
- Does the token resemble a security (what are the chances of SEC knocking)?
- Is there enough liquidity for you to exit quickly?
- How about if everyone were exiting at the same time?
- Are tokenomics affected by inflow / outflow of users?
- Are there tranches to cover protocol losses incurred in black swan events?
- Has the team adjusted tokenomics in the past?
- Are there other projects with similar tokenomics and how are they doing?
- Are there well-known holders?
- Are they selling or accumulating?
- Will the project remain relevant to see the next bull run?
- Are the tokenomics of this project better than that of its direct competitors?
- Has there been research into the tokenomics of this project?
- Is the project behind the token doing well?
- Are the tokenomics of the project overly complex and does that introduce more points of failure?
- How available was the data to answer all of these questions?
- Are you still sure you want to ape in?