Introduction

Being in crypto for 2 years, experiencing the ups and downs (very down in fact…) of the market, I may have discovered a great investment framework for crypto. I have learnt a lot after going through major drawdowns such as the death spiral of LUNA. The lessons I have learnt allowed me to develop a new way of thinking that enabled me to discover great investments such as GMX when it was still in the low $20s. I would like to share about my current research/due diligence methods for crypto such that other degens would not have to go through what I did 🥲.

In this article, I will be going through the steps of how I evaluate a project from the ground up. The aim is for this to be the ultimate guide to teach all degens how to research crypto and what tools should they use. The guide is supposed to be super comprehensive thus, there will be no TLDR unfortunately. But hey spending 1-2 hours of reading to make life-changing gains? Idk man sounds very good to me.

Of course, the framework that fits me might not work for everyone else. Feel free to DM me on Twitter if you want to discuss further. Without further ado, let’s begin!

P.S. Apologies in advance for using GMX repeatedly as an example lol, it just fits right imo.

Table of Contents

1. The Undeniable Trinity

   1. Tokenomics

      1. Supply Distribution (FDV ratios)

      2. Is The Token Useful Ser?

      3. Value Accrual → Diamond Handooooorssss

   2. Use Case(s)

      1. Do People Care?

      2. First Mover/We Still Early Brev

   3. Community

      1. The Ultimate Shills

      2. Ze Educatoooorssssss

      3. NFTs BUIDL Communities?

   4. Rankings

2. The Accessories

   1. Security

   2. Is The Team GMI?

   3. Valuashunnss and Comparisons

   4. Tail/External Risks

   5. Bera Market Plans

   6. Decentralisation

   7. Catalysts

   8. Macro

3. Tips and Tricks

   1. Finding Alpha

   2. Taking Profits

   3. Diversification

   4. Join The Community

   5. Wen to Use This Framework

4. Conclusion

The Undeniable Trinity

I am a big fan of going to the gym. Hardcore gymmers will know about the squat, bench and deadlift. They are known as the undeniable trinity of gym exercises. From what I have seen, the trinity also exists in crypto. (Also, cause my name is Matrix so if you have watched the movie then 😜)

For every project, 3 core points must be taken into account. They are:

• Tokenomics

• Use Case(s)

• Community

The points are ranked according to importance, with Community being the most vital. Let us deep dive into each one of them!

Tokenomics

Tokenomics are especially important for any project token. To put it simply, tokenomics are the economic model of any token. The tokenomics dictate the flow of supply and demand of the token. The following points are what I would consider for the tokenomics of a token:

• Supply Distribution (FDV ratios)

• Is The Token Useful Ser?

• Value Accrual → Diamond Handooooorssss

Supply Distribution (FDV ratios)

First off, we will have to look at the market cap/fully diluted valuation (MCAP/FDV) ratio. This is a key ratio every crypto degen must know. It is very basic but it tells you how much supply has yet to be released into the market. Why is this important? This is because it tells us how much potential sell pressure there would be in the future. Although we may be bullish on a token, we would not want to have to wait 3 years of mass selling before the token can finally take off.

A poor MCAP/FDV ratio would mean there is a high chance of opportunity cost for the degen when he could have invested in other great projects with better MCAP/FDV ratios that may pump while the one with a poor ratio is dumping due to vested tokens. To gauge what is a good MCAP/FDV ratio, we would have to compare ratios of similar protocols (e.g. DEXes) and see which one is higher (indicating less potential sell pressure). My rule of thumb for any project in general is >=0.5.

Next, we would have to see, who are getting these tokens? Is it going to you? Is it going to contributors? Is it going to pump and dumpooorrrss? Do take note, shady teams like to use different terms in their token distribution to throw you off. The following is the distribution for the Aptos (APT) token:

• Community: 51.02%

• Core Contributors: 19.00%

• Foundation: 16.50%

• Investors: 13.48%

So looking at the above, everything seems kinda normal and the community holds 51% wow awesome amazing. BUT, it is stated that a majority of tokens from the community and foundation pools (410,217,359.767) are held by the Aptos Foundation, and a smaller portion (100,000,000) is held by Aptos Labs. There is also no information as of now about who is in the Aptos Foundation. In short, Aptos Labs, Aptos Foundation and investors hold majority of the tokens. The vesting schedule also gets insanely steep from Nov 2023.

As token supply is greatly concentrated in the hands of insidooors from the start, this makes APT a token that is hard to invest in early. Aptos will and is already greatly centralised at the start since insidoors are handling most of the staked tokens before they get vested out. You would have to let the team approve their own proposals at the start and the community would barely have any say. Also, once tokens do start getting vested out to the community, selling pressure might be so massive that it OBLITERATES your investment.

If you want to see a good example you can check out how I projected the vesting schedule for GMX with aggressive vesting assumptions.

Is The Token Useful Ser?

Next, we would need to check the use case of the token, note that this is different from the use case of the project. To gauge the utility of the token, usually what I do is dive straight into the docs of the project and read what the token is used for.

From what I have observed, tokens are most useless when they are only used for governance and/or as incentives. Governance is unfortunately not a strong use case. Voting with the token is not something that is necessary as compared to when the token must be used as gas (such as ETH). This makes it a weak use case as not all investors will care about making decisions for the project, especially for smaller size investors whose votes matter much less than the whales. However, there are special cases where governance plays a big part in the protocol (e.g. Curve Wars, voting for more emissions). In such cases, the token will experience buying pressure from bribes.

Tokens that are only used as incentives, probably the worst use case ever, will just get dumped to 0. We have seen this happen for GST (reward token for STEPN) and SLP (reward token for Axie). There is no point in holding the rewards and hence everyone wants to get out faster than others so that they will be able to dump them at a better price.

Now that we can rule out the bad, how do we look out for a strong use case of the token? The most obvious way would be to spot if the token works in tandem with the project or rather if the project requires the token to function properly. A great example of this would be RUNE, the token for THORChain. TLDR, THORChain enables cross-chain native liquidity and users can provide liquidity for this. However, whenever they deposit liquidity for let’s say ETH, they will have to pair it with RUNE or the protocol will automatically swap half of it for RUNE. This shows that there will be necessary buying pressure on RUNE as THORChain increases in adoption. As RUNE is vital for the success and usage of THORChain, this gives the token an extremely strong use case.

Value Accrual → Diamond Handooooorssss

Value accrual is an extremely strong use case for tokens hence I am giving it its own section. Value accrual means that token holders stand to benefit from the increased adoption and hence revenue of the protocol.

There are two main ways this is being done currently:

• Burning Tokens

• Token Buybacks

• Distributing Revenue Through Staking

For burning and token buybacks, they are done in hopes to create deflationary tokenomics for the token. Theoretically speaking, lower supply and increased buying pressure should mean prices go up.

An example of a token burn would be SPA (token for Sperax, a stablecoin protocol on Arbitrum). As the TVL for collateral deposited to mint USDs (Sperax USD) increases, more fees are earned from the minting of USDs, resulting in more rewards for SPA stakers, incentivizing buying and staking of SPA to share protocol revenue. With increased minting of USDs, more SPA tokens will be burnt, leading to deflationary tokenomics. In this case, we can see a positive flywheel effect in play. If there is more buying pressure due to incentives and supply is getting more scarce, theoretically, SPA’s price should appreciate ceteris paribus.

Firms like FTX will also burn their tokens, FTT, after buying them back from the market with the fees they receive. Same thing here, more buying and less supply should mean a price increase. Note that buying back tokens does not necessarily mean the team will burn the tokens by sending them to a zero address. The team may store the tokens in their wallets and it is up to their discretion if the supply will be diluted in the future.

The most popular value accrual mechanic as of now would be staking to earn a share of the platform’s revenue. We are seeing this being done for many popular projects such as SNX and GMX. However, a strong point to take note of here would be that many of these “Real Yields” are oftentimes not fully real. SNX and GMX for example, do give out their own incentives aside from the fees they earn (such as SNX emissions and esGMX). A degen must keep in mind that if a platform is giving out way more emissions rather than actual revenue, holders may sell once incentives run out as there are now better yields out there. Therefore, this would be unsustainable.

On the other side of the picture, there are projects such as Kujira that give out true real yield. All stakers receive only the revenue of the platform with no token emissions. Sounds great at first but the current yield as of now is still small unfortunately since the platform is still new. However, this paints a very nice long-term picture because I feel that it allows for much more organic growth of the community. Investors get into KUJI (Kujira token) not because they wanna earn 20–30% yields right off the bat, but because they believe that Kujira will achieve mass adoption in the future which will naturally increase staking yields. Therefore, for projects like Kujira, you would have more long-term-minded investors which may mean that KUJI will not suffer a big dump because its staking yield dropped drastically after emissions are used up.

To sum up, all the above methods incentivises holders to diamond hand tokens simply because they stand to gain more profits as the protocol gains more adoption. A degen should keep a lookout if the team is buying back tokens with money that did not come from the project’s revenue or if staking yields consist of too many emissions rather than actual real yield.

Use Case(s)

Jesus man, we just reached the second point of the Undeniable Trinity and we still have so much more to go 😂. Stand up and stretch a bit whenever you are getting restless serss. Get some coffee if you need~

So, use cases, that’s pretty damn broad. Let me explain how we check if a project has a proper use case that is likely to withstand the test of time/berasss. The following points are to be considered:

• Do People Care?

• First Mover/We Still Early Brev

Do People Care?

A use case is only viable if there is demand for it. There have been many “use cases” brought up in Web 3, but most have been trash, unfortunately. The most obvious use cases for crypto have been financial primitives such as trading, leverage, loans etc. Since crypto started off trying to be a new currency, finance has thus been the largest and most viable use case for it as of now.

One thing that I have noticed regarding new projects is that they sometimes try to convert a Web 2 product to Web 3 product when it is working perfectly fine on Web 2. Project founders are likely to end up in this category when they are trying to make a profit out of Web 3 without much knowledge of the industry. So one such example I can think of is some dude pitching to me his product that he is trying to raise funds for. TLDR, he wants to make a Web 3 hookup app and use blockchain to verify the authenticity of reviews lol… I guess some would think that since the blockchain is transparent, the idea sounds kinda good. But how would you onboard people onto the platform and write reviews such that you can build a proper database for newer users? His idea was to incentivise them with tokens. Well, unfortunately, it sounds like a terrible idea due to supply dilution by constantly giving out rewards (further explained in the tokenomics section later) hence making the review system unsustainable in the long run.

We should also take a look at the problem that it is trying to solve, is it something that is an absolute need/are there already services out there solving this issue? I like to think that if something is not broken, don’t fix it. Tinder is working fine soooo. We can also look at the jobs to be done, the concept is nicely explained here. Consumers hire a good or service to fulfil a specific task. But let’s compare it to a real-world example, if an employer already hired an employee that does a good job, why would he risk changing the employee for one that may not do as well? Tinder already has its moat/market share/user base whereas the Web 3 variant would have to build from the ground up with incentives that are not gonna last forever.

I feel that Web 3 projects should be exploring use cases from a disruptive innovation POV. Therefore, the use case must be something that allows for access at the lower-end market (lower income levels/lower BTE) or coming up with something new that people never knew they needed (discovering new markets). DeFi is a great example of a Web 3 use case that exhibits disruptive innovation qualities. This is because it targets the lower-end market of consumers for financial products. In 3rd world countries, some people live far from cities and do not have access to banks from the rural parts of their residences. With an internet connection, they can now have access to DeFi which allows them to take loans or lend out assets to earn interest. Also, as such people may not have eligible credit ratings since they likely belong to the informal economy, the permissionless nature of DeFi opens up the world of finance to them. Although DeFi is still immature and I doubt it is already changing majority of the lives of those mentioned above, the potential is there as teams slowly manoeuvre their way to making DeFi revolutionary.

Another way to identify if a use case is disruptive would be if it is something that people did not think they would need. This however is much harder to evaluate because chances are you need to be very big brain to discover this early unfortunately 😅. One example in Web 3 that I can think of that might fit this category would be the metaverse. During Covid lockdowns, we have become more immersed digitally, especially with stay-home restrictions and reduced physical social interaction. Even as the world tries to move on, many people now still prefer to work from the comfort of their own homes, doing everything over the internet. Screen time has increased over time as our lives move to the digital world. It seems inevitable for digital identities and ownership to be important in the future. The metaverse will allow everyone to live their lives digitally which seems like a natural progression from where we are heading.

One big issue , however, is when you discover such disruptive use cases early on, it is tough to spot which ones will do well in the future. For the metaverse example, literally everyone including Web 2 companies such as Meta is trying to do their own metaverse. How do we filter out what is bad and what is good? The best way to do this imo would be to first find a few Key Opinion Leaders (KOLs) on the same topic. For metaverse, one I can think of would be Punk6529. Check his tweets, what are his criteria for a good metaverse? After finding a few KOLs, you can do further research by checking their followings, chances are they are following other accounts that talk about the same topic as well. For them to follow those accounts, there is also a good chance that their opinions are worth a read. After collating all the information, you can then proceed to use the other key concepts listed in this article to deem if the project is worthy of your investment.

To sum up, make sure that there is a proper disruptive use case for the project you are looking at. It should not be something that is better off being done in Web 2.

First-Mover/We Still Early Brev

The use case might be amazing and purposeful, but how big is the market size and are there already big players dominating the scene?

Total addressable market (TAM) wise is how one would roughly know the market size for a certain use case. As most viable products are under DeFi now, parallels are usually drawn between DeFi and TradFi to gauge TAM. However, since DeFi is disruptive, it is totally possible for DeFi’s TAM to be much bigger than TradFi especially when there are/can be new financial primitives in crypto that do not exist in traditional financial instruments such as perps. For me, I used the trading volume of crypto perps (CEXes do offer perps as well) from last year as a possible function/indicator of TAM for crypto perps as shown in my GMX pitch.

Regarding much more disruptive use cases such as NFTs and Web 3 gaming, gauging TAM would be a bit iffy as it is uncharted territory. But for such cases, I would not worry too much about it since the industry is so immature and that much growth is yet to be discovered.

Now that I have explained how to roughly gauge market size, let me use Uniswap as an example to illustrate first/early mover advantage in crypto and why it is a VERY strong advantage.

For sure the TAM is huge for swapping crypto, the very first purpose of crypto was supposed to be a currency anyway. But as I have observed thus far, first-mover advantage is extremely important in this space. As we can see in the following picture, Uniswap is clearly the KING of DEXes.

Why is it that Uniswap has dominated thus far despite there being many other variants/forks? Imo, this is likely due to it being the first to implement the x*y=k market maker formula and being around in the DEX space for one of the longest. The product simply works, and since it works, it led to a flywheel as illustrated:

1. People trade on it

2. Product works

3. More people come and try it

4. Volume increases hence fees increase

5. More liquidity is provided to earn fees

6. Better liquidity=better trading experience

7. Cycle repeats

Since the success of Uniswap, as we can see, many have tried to replicate the success by forking the code, making similar variants etc. However, as such a product requires liquidity concentration to work well, new players will find it hard to acquire sufficient market share. We can see this in the case of memecoins when they tried to inject “utility” into their project by having their own DEXes. Shiba tried to do this by having Shibaswap, currently, 24h volume on it barely exceeds $2M as of the time I’m writing this. Why do people not go to Shibaswap or any other DEX? Let me illustrate the reasons:

• A new DEX starts with 0/low liquidity

  • Time is needed to grow liquidity

  • People rather trade on Uniswap first since its already liquid → lower trading volume for the new DEX

  • Results in high slippage → even less trading volume

• These factors lead to less liquidity being deposited

  • Spiral of worse liquidity and less trading volume over time

• A new DEX is not battle-tested

  • Possible smart contract vulnerabilities

The last point mentioned above regarding the project being battle-tested is especially important. Crypto is still a very new space and relatively older products naturally feel much safer to use since they have a better track record (provided they have been working well throughout). As mentioned, if something is working, don’t try fixing or in this case replacing it. As a user, I would always go for the more reputable product, hence the first-mover in crypto can retain and increase user activity. This leaves less market share for the other projects. Many times I see moontards trying to pump their bags by comparing the marketcap of A to marketcap of B (both having similar use cases and B being the established project). This method is terrible as A doing the same thing as B does not mean it can one day catch up to B. In fact, it might even limit the growth of A severely if B is already doing the same thing and there is not much differentiation between the two. Therefore, having a very similar use case, albeit a viable one, does not mean the project will gain traction.

Due to the above reasons, market structures in crypto mainly consist of monopolies and oligopolies (where a few big players are dominating the market). On the outside, it would appear that the market is very contestable due to fairly low BTE (just fork the code ser). However, as many use cases (loans, NFT trading, bridging etc.) revolve around the presence of ample liquidity and/or a big and loyal user base, first/early movers can establish substantial economies of scale. Thus, raising BTE and making it difficult for newcomers to compete unless there is obvious product/service differentiation.

Therefore, there are exceptions where tweaks are made to a product with a similar use case, resulting in it still gaining a significant portion of market share. Ok I am basically a massive GMX shill by now but the examples will be super applicable here so please understand LOL.

If we take look at the perps market, dYdX is very dominant, literally processing more volume than Uniswap as of the time of writing this and ranking 2nd in DEX volume. GMX is much newer than dYdX. However, GMX was still able to gain traction and users despite offering way fewer pairs than dYdX and no trading rewards, having $2-300M in trading volume on good days. But ser you said same use case means NGMI ser…

Although both GMX and dYdX offer the same perps trading service, some key differences convince traders to trade on GMX instead of dYdX. The main difference would be that GMX utilises an LP model whereas dYdX uses the orderbook mechanism. There is no price impact for traders due to GLP which is the counterparty for every trade and acts as one giant basket of assets functioning as an over-the-counter (OTC) desk. The LP model is also inherently more decentralised than the dYdX’s orderbook mechanism. These key differences give traders good reasons to trade on GMX as there is now a clear differentiation between GMX and dYdX.

The takeaway from all these would be either identify a first/early mover of a viable use case or make sure that there is differentiation between projects of similar use cases before investing. I would be rich by now if I could tell you how to identify a first-mover from the start but I think one way would be to track the traction of the project (number of users, volume, revenue, fees collected etc.). Sometimes the project may even have its own stats page such as Synthetix. If no data is available publicly, try asking the team.

Community

The community of a crypto project is a make or break for the project. What exactly are communities in crypto and how do they ensure the growth of a project?

From my POV, a crypto community is a group of people that are very passionate about the project. Instead of just being passive investors, they take it one step further and promote their favourite projects on social media. There are two types of communities, namely:

• The Ultimate Shills

• Ze Educatoooorssssss

The Ultimate Shills

This community is made up of people who just keep screaming at others to buy their coin. When asked for the reasons for investing in a particular coin, oftentimes they are: “ITS GOING TO THE MOON SOON” and “X DOES THE SAME THING AS Y SO ITS ONLY NATURAL FOR Y TO AT LEAST HAVE THE SAME MARKET CAP AS X”. They may also send a few graphics made by the marketing team that summarises a few key points about the project. Such a community is desirable only during a bull market. Why do I say this?

A community that focuses on price is unaware of crypto fundamentals. This has been proven in the rise of memecoins last year, with countless accounts spamming Twitter comments promoting variants of animal coins. Their reasoning? “Buy now for a 100x”. The mass promotion and shilling led to memecoin season when the absolute shittiest coins with the stupidest names did 100x or even 1000x. The coins had no use cases, were mostly pump and dumps and had the worst tokenomic models. But ser, why still pamp?

As there was nothing to understand about these dog coins except that they were memes, they presented much lower barriers to entry (BTE) to normies who still have not realised that Ethereum is now eco-friendly. Therefore, in a hyper-speculative environment such as the bull market of last year, such communities were extremely helpful in getting projects known. Speculators just wanted to know what to buy as long as numba go up. However, as stated, such communities will not be effective in the deep depths of the bera markets. As the communities only have upwards price action to talk about, when there are no fundamentals for the project to fall back on, such communities will fail to promote the project sustainably

To apply this knowledge, even degens are recommended to avoid projects with such communities. They are prone to be echo chambers that constantly talk about price and are unsustainable in the long-term. Nevertheless, the risk-reward ratio for investing in projects with such communities can be decent in a bull run. The meteoric rises of Doge and Shiba as seen in the following figures illustrate the power of a strong community made up of the ultimate shills who only care about up only action.

To end off this section, degens are advised to exercise caution around such communities in the bera markets but they can consider allocating small amounts of capital to such projects under certain circumstances which I will be going through later on under the Macro section.

Ze Educatoooorssssss

A desirable community is one that understands the project and promotes it in a conducive and educative manner. Such a community should also be more open to criticism rather than shutting down everything as FUD.

So what is so great about such a community? Well, because the founding members of the community can educate others on what the project is about, it can be assumed that they put in the work to understand the project. This is a good indication that the community will be in it more so because of the fundamentals rather than short-term price action (to the MOOO.. man STFU lol). This creates a more sustainable community as opposed to a community that focuses on price as explained previously, and falls apart easily since there are no fundamentals to fall back on as price flies down to hell…

Educatoooorsss usually make many many Twitter threads and articles about their favourite projects, which is a great way to attract more investors who will be in it for the long-term. Such a method may also attract more smart money investors rather than gamblers who are just going to put in 100 bucks and pray for moon. You would want a project that attracts fewer gamblers and more smart investors, especially in a bera market. A community made up of speculators with no conviction will continue to dump the project to oblivion as we go deeper into the depths of the bera whereas a sustainable community will have diamond hand investors who may even buy zeee dippp. Thus, the price is likely to be more sustained.

Once again I would like to use GMX as an example here. As we could see from the countless threads being put out about the project while it was trending (shilling mine here huehue), many who were previously unaware of GMX slowly became believers as shown in the following figure. Educatoors not only can introduce more convicted token holders, but can also increase adoption for the platforms being promoted, creating a positive flywheel effect (project valuations go up with more usage).

As mentioned, it will also be great that such communities are open-minded and receive criticism. However, since the members have put in work to research the fundamentals, criticism to them may appear as people trying to discredit their hard work. Therefore, I would say it’s not too common to find a community of educatoorss that are also very receptive to criticism. An example I would very much not like to bring up (cause man was OBLITERATED) would be Luna. It is hard to deny that there were indeed big brains who were supporters of Luna such as Jump and Delphi. However, as many community members have put in much work in researching Luna, criticism was definitely not taken well (this was arguably also exacerbated by Do Kwon’s attitude, something that I will dive into later on). Speaking from personal experience, when we see criticism, we immediately address it as FUD for reasons such as:

• They just don’t understand bruh

• How can this guy know more than me? I have researched this project for weeks and he probably dug this argument out of his ass

• Person A is from a big fund thus what he said must be true, he must have researched before investing millions RIGHT?

• This guy who talks about Luna has so many followers and is well-respected, his information must be TRUE

As the community for Luna including myself had invested a lot of time into researching the project, words that were just plain criticism were taken as personal attacks on our hard work. We think that because so much research was done by big brains and thousands of simulations were even done for the stability of UST, nothing bad could possibly happen. This results in failure to take into account black swan events as well as fragility in unsuspecting areas (e.g. the curve pool liquidity for UST).

The GMX/KUJI community has been receptive, at least more than the other communities I’ve been in, to criticism. The team and community members are usually responsive towards criticism on their respective social channels. Although I would like to admit that finding a perfect community that accepts all constructive criticism is perhaps impossible simply due to human nature. There was still hostility such as from Algod regarding the AVAX exploit on GMX when he was responding to “FUD”. Of course, such situations are debatable and FUD is subjective.

The takeaway for degens is to invest in projects with communities that are invested in the project due to fundamentals and not short-term price action. Such communities should also be aiming to attract investors with fundamentals and not promising the moon. They should also be trying their best to be open to criticism and not exhibit echo chamber behaviour.

NFTs BUIDL Communities?

Before I move on to use cases, I would just like to shortly address NFTs as a community buidling tool for projects. As we can see from the above figures, avid crypto bros will immediately recognise the following NFTs belonging to the ApeCoin and GMX projects respectively. NFTs can give the project its own branding and its own identity. This drives a strong community effect from what I’ve seen, as these NFTs give their holders a sense of identity and belonging to the project. By displaying these NFTs as their PFPs, they are also indirectly incentivised to promote the project more because it gives more recognition to the holder of the NFT. By feeling more connected to the project through NFTs, the holders are likely to be more convicted investors as well rather than random speculators which creates a more healthy community.

Therefore, even DeFi projects can consider having an NFT project to build up their community. Degens may also consider investing in the NFTs instead of the token as a leveraged bet on the project. However, the NFTs will need to have some sort of utility related to the project (GBC rewards holders with esGMX).

Rankings

In this section, I would be explaining why I rank the trinity as such: Community > Use Case(s) > Tokenomics. Gonna keep it short since rankings are very arbitrary for such things and many may prioritise them differently or maybe even treat them equally.

From what I’ve been seeing, crypto has many many projects popping up every day. For a project to even get noticed, it would need a strong community that gets the word out there. If nobody has ever heard of a good project, it is as good as worthless imo. Some examples that I would really not like to bring up because they are TRASH but survived/thrived would be XRP, Cardano and Doge. They are absolute dogshit (crappy fundamentals, poor tokenomics) but are still large in marketcap because the communities (and big whales of course) are still sustaining them.

Next would be Use Case(s). Now that word has gotten out about the project, the project must have some substance for it to be a viable investment. As explained, a community can just shill a project everywhere but if there are no fundamentals, then everybody is gonna be in it just for price up only action. UNI (Uniswap’s token) is a good example of a project with a strong community and a very good use case that has gained great traction. UNI has poor tokenomics since it is mainly used for governance and LP rewards. However, since it is well-known and does something important, there are still many investments made in UNI since buying the token is the best way to speculate on the future growth of Uniswap despite it possibly not holding any intrinsic value.

The last one would be tokenomics. Tokenomics are still very important but as just explained, I would feel that it ranks behind use case(s). There were a lot of UNI emissions to liquidity providers which did bring the price down as well as there being no strong use case and value accrual mechanism for UNI. However, the marketcap of UNI is still ranked 17th on CoinGecko as of the time of writing this. There are quite a few other projects that fall under the same category (Good community and use case but bad tokenomics) that have also done well. Therefore, I believe that tokenomics rank last.

As the industry matures, the rankings are sure to change but as of now, I still stick to Community > Use Case(s) > Tokenomics.

Accessories

You have made it halfway through this article 🎉! Pat yourself on the back, stretch a bit and let’s move on to the second part.

So if your project has cleared the Undeniable Trinity, you can now move on to see if it qualifies for each accessory, the icing on the cake. If your project could not pass the Undeniable Trinity, I am sorry to say, its highkey trash… Here are the accessories to consider:

• Security

• Is The Team GMI?

• Valuashunnss and Comparisons

• Tail/External Risks

• Bera Market Plans

• Decentralisation

• Catalysts

• Macro

Just like in the gym, you cannot just be doing compound movements. To truly MAXIMISE gains (for Zyzz brah), you need some goddamn accessories. It is the same for crypto. These points are still important albeit not as vital as compared to the trinity.

However, just like some prefer machine curls over dumbbell curls, I do not always evaluate a project on all 8 accessories. But I shall explain all 8 since how you formulate an investment thesis is up to personal preference really.

Security

An obvious one here, if a project is great but keeps getting hacked, it will never gain traction in the long-run. So how do we know if a project is secure?

Firstly, we can check if the project has been audited. You should be able to find this in the project docs or you can just approach the team. Just knowing if it has been audited may not be enough, degens should also check out Rekt to see if the track record of the specific auditors has been clean. If an auditor keeps appearing on Rekt, chances are they are not doing a great job. As such, it will also be great if the project has audits done by different companies. You may check this article by CoinGecko to learn more about smart contract auditing companies. Audits should also be done regularly since if it is an active project, there should be new changes in the code from time to time. DeFi Llama also has a page specifically on hacks.

Secondly, check if the project has been hacked before and how many times has it happened. Did the team take any action afterwards? THORChain has suffered numerous hacks last year. Since then, THORChain has hired a dedicated audit team named THORSec to ensure that everything is secure to use before launch. There have also been bounty programs for white hat hackers to discover bugs that were missed out by the team. THORChain also hires external audit teams as well as audit teams from other layer 1 protocols to aid in security measures.

Meanwhile, projects like Cream Finance have basically given up. After being hacked multiple times, the team has been relatively quiet this year with barely any tweets.

Attacks may also happen in the form of exploits and not exactly hacking through code. We have seen this happen for Mango where the exploiter manipulated the price of MANGO to increase his collateral value and to loan out more money. Oracle exploits such as what happened on GMX are also relatively common. Exploits can be something tricky to be looking out for especially from a degen investor’s POV since it will require a lot of technical knowledge. What I would recommend is to spread out your risk between different types of projects as well as look out for what are the most common types of exploits/hacks in order to avoid/invest less in the projects which potentially face the same kind of threats. It would also be good to stay up to date on the exploits/hacks happening in crypto and to note down what are the most common ones (e.g. bridge hacks are very common). Consider following PeckShieldAlert to get tweets on exploits/hacks.

Lastly, important smart contracts of the project should be under a multisig. This can things like the treasury. Not a pro at checking the contracts but the docs of the project may state if the smart contract is a multisig. For example when I go to the docs of JPEG’d, I can find the contract address for its treasury. It shows up on Etherscan with a “Multisig” tag as shown in the figure below (note that not all multisig contracts may be tagged). A multisig contract is important especially when the contract controls a big sum of money. This is to ensure that a single entity cannot just decide to rug the project one fine day.

To keep in mind for security, make sure that the project has several or at least one audit from a good company if possible. If the project has been hacked before, were there strong measures taken to prevent future hacks? Keep track of the latest exploits in crypto to make sure that you are not overly exposed to projects which can suffer similar types of exploits. Lastly, ensure that the project has multisig contracts for the important stuff.

Is The Team GMI?

In this section, I am going to address what a good team behind the project should be like. This section excludes their competency since we are assuming that the project has fulfilled the criteria for the Undeniable Trinity which would mean the team is already good at creating projects. So what are we looking at here would be:

• Attitude Towards Criticism

• Passion & Determination

• Identity

The team needs to be open to being criticised. From observations, projects that fail to take criticism have mostly suffered. This happened to Terra, THORChain and most recently, Manifold. The common points here are that the founding teams and/or the social media accounts are always aggressive towards “fudders”. The tweet below shows an example of when a founder exhibits red lights 🚨. Another example would be the stubbornness of the team to change. The THORChain team took a few months after the Terra debacle to deliver a new proposal on THORFi which ultimately turned out to be worse than the initial plan as I have highlighted here. Refusal to change will lead to the doom of the project, especially in crypto which is one of the fastest-paced industries out there.

Next, we look at the passion and determination of the team. This is rather subjective but I think it can be quite obvious to spot at times. For instance, one could see how serious the Kujira team was about redefining DeFi. Kujira had been greatly implicated by the collapse of Terra as its product, Orca, was a liquidation bidding platform for collateral on Anchor. However, the team was not fazed and made Kujira a standalone chain on Cosmos in 1.5 months. Not only that, since then they have built a suite of products such as FIN, an orderbook DEX and released USK, a new fully decentralised stablecoin. They are a great example of a team we want to look out for, one that delivers their promises and continue to buidl in bera times.

A classic bad example would be Cardano, with the founder and the community constantly giving out empty promises. Countless projects out there have developed more things than Cardano has in the last 4-5 years. As shown below, Cardano has about $58M in TVL (ranking 32nd among other chains as of 22 Oct), with majority of its TVL being on DEXes and nothing else. Only a total of 12 apps are on DeFiLlama, showing the clear failure of Cardano devs in delivering products and results.

Lastly, I would like to address the identity of crypto teams. There are both anonymous (anon) as well as doxxed teams in crypto. I think it is up to personal preference here, some feel a sense of security knowing who the team is made up of. Personally, I am fine with either. I also feel that a doxxed team with supposedly high qualifications in the Web 2 world may give rise to false expectations that they will do well in Web 3. The founders of Kadena used to work at JPM. Since its inception in 2016, the team took almost 6 years to have a working blockchain which has a very sparse ecosystem of 53 projects, most of which are not even native projects or can even be considered under their ecosystem. On the website, even CEXes such as Kucoin are listed under ecosystem when all they did was list Kadena’s token on their exchange. Overall, It is best to judge the project based on the work being put out rather than who the team is made up of.

All in all, degens should make sure that the teams they have invested in are truly putting in the work instead of just gloating on social media all day and calling out criticism as fud.

Valuashunnss and Comparisons

As investors, we would like to invest in the more undervalued project which has more room for growth. Therefore, we would need to valuate projects and compare similar projects to scope out the undervalued ones. The several ways we can do this are:

• Using Ratios

• Forecasting Growth with Models

The fastest way to know if something may be undervalued would be to compare the ratios between project A and other projects doing similar things. This is illustrated in my slide below where I compared the industry average PE ratio and GNS’s PE ratio to GMX’s PE ratio. A ratio on its own cannot tell you much, a PE ratio of 10 might seem like you are getting a good bargain already but as we can see, GMX’s PE ratio is even lower than 10.

Of course, just one metric is not enough to tell the whole story. The following ratios are some common ones I would use:

• PE Ratio

• MCAP/TVL

• FDV/TVL

• MCAP/FDV

Do note that the PE ratio may be complicated to calculate especially if the business model is not the most straightforward. Such as for AAVE, borrowers can choose to pay either variable interest or at a stable rate hence there are different sources of revenue. Some may also consider the token emissions that are used to attract more activity. In that case, the value of the emissions can be deducted from the revenue to achieve the true amount that the protocol has earned.

There may also be more specialised metrics for the protocol/industry that you are evaluating. For example, for DEXes, you could use trading volume as a metric to be compared and further modify it by getting Volume/MCAP. This will give you the amount of trading volume the protocol processes per dollar that you have invested in it. Hence, allowing you to compare each DEX to see if you are overpaying for the amount of traction that the DEX is gaining.

Next up, we may use models to forecast the growth of a protocol, and thereby compare it with other protocols to see which can give better ROI. In here, I used discounted cash flow (DCF) models to gauge the prices of GMX and GNS. The assumptions I took were also listed on the bottom of the sheets. The emission rates (token unlocks) are also taken into account.

The DCF method is adopted from TradFi, you may learn about it here. Personally, I do have my doubts regarding such a method. The discount rate used for a DCF model would typically be the Weighted Average Cost of Capital (WACC). If we look at the figure below from Investopedia, we can see that the WACC requires knowing about equity and debt values.

However, what exactly are equity and debt for a crypto project? Most treat tokens as equity which seems a bit weird given that we insist that tokens are not securities. Meanwhile, the debt of a project may be uncertain. Debt can be raised off-chain, in which case it would not be information that we have access to. Meanwhile, to calculate cost of equity, we would need to get the value of the Capital Asset Pricing Model (CAPM, formula in figure below). CAPM tries to give us the expected return of an asset by taking into account its risk. When applied in the context of crypto, using CAPM becomes tricky. It is unclear as to which asset should be used for the risk-free rate (usually the treasury rate is used for TradFi). We can perhaps use BTC, the longest-standing “blue-chip”. But an asset that can go from up 300% to down 70% is a bit sus… To calculate the market risk premium, we would take the expected ROI for the market (ERm) minus the risk-free rate. In TradFi, the S&P 500 would be used for ERm (typically 8%). In crypto, unfortunately the market is not at a point where we can safely say the top 500 or even top 100 are made up of blue-chip projects that will represent ERm accurately. Calculating the beta (volatility with respect to the market) also requires a market benchmark which leads us back to the same issue. Thus, the flaws of obtaining CAPM and hence WACC makes it hard to get an accurate discount rate for DCF models in crypto.

In that case, what I did was use 25% for the discount rate (googled what is usually used for disruptive tech startups lol), followed by a sensitivity analysis of discount rates up to 45% to take into account the high risks of crypto markets. A range of PE ratios was also used since the mass speculation can lead to very inflated prices. Nevertheless, crypto is a very young market and coins before 2017 had no fundamentals/used for payments only (no cash flow generated). Therefore, there is not a lot of historical data (perhaps arguably none) to be used for cross-checking if the numbers we are getting, make sense. As such, using such valuation models with formulas adopted from TradFi, may lead to great inaccuracy.

So why bother doing it? Even in TradFi, DCF models are not the be-all and end-all. What we should be trying to do is to come up with the best thesis with the limited data that we can obtain. The metrics/ratios previously mentioned and the DCF models can be used in tandem to frame our thesis and to see if everything makes sense (how many data points point the project to being a good investment versus it being bad?). However, I do feel that there could be a better way to valuate crypto projects in the future. Over time, as the market matures and becomes more efficient, it should be clearer as to what numbers are suitable to be used in such valuation models by comparing the results with historical data. Maybe new methods could be invented for crypto valuations since the asset class can be very different from stocks.

Tail/External Risks

A very important accessory, something I failed to consider thoroughly in my thesis for LUNA and THORSwap.

What are tail risks? Simply put, a tail risk refers to the chance of a low probability event occurring, leading to a great loss in the investment (kinda like black swan events). In my video on LUNA, I did highlight the fact that UST could depeg but I did not take into account that it could very well not repeg back to a dollar. In my mind, I was thinking that the peg could be saved and the tail risk would incur a temporary loss only. As such, I was not prepared for a true black swan event where the peg could not be saved. The lesson here is to always include the worst possible scenarios for your investments. Seriously, your favourite coin could just never take off or even go to 0.

My thesis for THORSwap was indeed wrong as well, although not quite due to tail/external risks (debatable since Terra generated a lot of hype for THORChain which dissipated after the collapse). In the video, I highlighted that a risk for THORSwap would be that THORChain not being able to gain mass adoption (volume has been suffering greatly since Terra collapsed). Arguably it is still a bit early to say, but judging by what the team has been doing as mentioned previously, I am no longer bullish on THORChain and hence THORSwap. Taking into account the possible risks for the THORSwap investment did allow me to exit earlier when I noticed THORChain losing traction, hence avoiding a total loss.

The last thing to take note of here would be external risks. Your favourite project could be very reliant on other projects/chains. This best is illustrated again with Terra examples (the pain🥲). Anchor Protocol, the place for borrowing UST, went haywire. As UST depegged, Anchor was no longer usable since the point of it was to allow users to collateralise LUNA (which is now a shitcoin known as LUNC) to borrow UST (no longer worth a dollar). Thus, its token price dropped drastically as Terra collapsed. Many other projects also relied on the yield by Anchor such as Orion which is unable to offer yields for stablecoins anymore.

To conclude here, degens should consider all possible risks of their investments. Always be prepared for the worst, consider hedging your downside with options or perps or simply just diversify. Make sure to take note if your investment requires the success of other protocols/projects/chains. Does the project has alternative sources of revenue if whatever they are relying on does not work? Has the project diversified itself by launching on different chains? Will it be costly for the project to move out (barriers to exit)? In the case of Anchor, they had to either close shop or revamp themselves as a totally new protocol (high exit costs) since the whole model revolved around the success of UST and Terra.

Bera Market Plans

Short points to take note of here. Make sure to know the project’s runway, how much money do they have to survive and buidl? Is the treasury still worth anything? Usually, the treasury’s contract is available in the docs. Check it from time to time to see if the team is burning through it fast. Lastly, check to see if the roadmap makes sense and has the team been delivering what they promised.

Decentralisation

Briefly touched on this in tokenomics, so what we are trying to evaluate here is that the project is not controlled by one or a few entities. The point of crypto was to give power to the people and not have it in the hands of a few.

To know if a project is decentralised, a good method would be to see the ownership concentration. You can do this by going onto the respective Blockchain Explorer such as Etherscan and search your favourite token, then proceed to click holders to check the ownership concentration. You may also check out intotheblock, however, it only has a 7-day free trial. It can be hard to say what exactly is a bad concentration % but we can always compare similar projects. Let’s say I wanna invest in a GameFi project, I go and check SAND’s and MANA’s whale concentration (shown below) which are 81.62% and 53.22% respectively. It becomes clear as day that SAND’s token supply is very centralised. In fact, it may be worse than it appears since whales can have duplicate addresses. This is an important metric since voting power is usually decided by the number of tokens. Therefore, leaving very little say for the poors. A very centralised token supply would also mean that price can be easily manipulated by the whales.

This article focuses more on protocols rather than the blockchains themselves. But if anyone wishes to know how to gauge decentralisation for a chain, they can check out the Nakamoto Coefficient.

Overall, degens would wanna make sure that they are not at the mercy of whales and insiders.

Catalysts

An undervalued project will forever stay undervalued if there are no catalysts. What are the drivers that will blast your project to the moon?

Usually, marketing campaigns such as trading competitions (FIN, STFX etc.) are carried out to bring the word out about the project. Incentive programs such as liquidity mining are also often used. As more people come over to try out the project, the project should be able to retain them if it has already fulfilled all the previous criteria.

Take note that such methods can only catalyse what is bound to happen and not improve a project. Incentives do not last forever and projects that cannot retain users will just be another target for mercenary capital.

Are there other catalysts? For example, a stablecoin protocol such as Frax could seed liquidity on Curve and direct emissions towards their own pool to incentivise more users to swap to their stablecoin. A stablecoin protocol could also partner up with companies to enable real-world payments.

All in all, degens should make sure that the projects they have invested in not only knowing how to buidl, but as well as knowing how to achieve mass adoption, naturally leading to higher valuations.

Macro

The broader macro economy does dictate the movements of the crypto market as well. As the S&P dropped 20.5% since the start of this year, BTC and ETH have dropped over 58% and 63% respectively as of 25 Oct. Contractionary policies hurt crypto badly since the asset class is still speculative.

For example, demand for DeFi has fallen, as clearly seen in the following figure where DeFi TVL has dropped drastically. Rising energy prices and increased interested rates lead to higher costs and reduced income. Since crypto is still seen as risk-on assets, money exits from crypto first rather than other assets like stocks. To understand more about how the economy works and how it can affect crypto, check out the video by Ray Dalio and Arthur Hayes’s Medium.

Degens need not place too much emphasis on this particular accessory especially if they have invested in projects that have a good runway, a team that buidls regardless of circumstances and has proper fundamentals. However, we have seen that in a bullish environment, investing in coins with no fundamentals can still pay off greatly (e.g. DOGE). In this case, a small portion of the portfolio can be allocated towards shitcoins in a bullish environment (Wintermute was spotted holding SHIB and ELON tokens when they got hacked lol).

Nevertheless, the best thing that degens can do for themselves is to invest only in fundamentally strong projects that can withstand the toughest of beras.

Tips and Tricks

The content-heavy stuff is finally over! Now I shall introduce to you some helpful pointers that can really kickstart your research process and investment journey.

1. Finding Alpha

2. Taking Profits

3. Diversification

4. Join The Community

5. Wen to Use This Framework

Finding Alpha

The best way to get to know the best potential projects would be to hang out on Twitter, A LOT. There is a lot of good info there, and the best way to find good info would be to spend more time on the platform which will lead to you eventually finding your own alpha. My best advice is to start using Twitter and avoid following blatant shills as well as ones who only care about price.

Another piece of advice would be to avoid YouTube and Reddit. From what I observe, crypto YouTubers tend to be paid shills that only talk about price whereas crypto Redditors are lagging behind crypto Twitter (CT) by like a year or two. TikTok is also probably not the best place to be though I personally have not used it often.

Consider joining crypto news channels such as The Daily Ape and Treehouse (#noshill hehe). They help to consolidate the latest news every day and sometimes there might be gems in there. I have also linked many valuable research tools in this article, do make good use of them.

After you have found the projects you are interested in, the best way to know more would be to simply read the docs. Do not be lazy.

Taking Profits

Remember to always take profits especially if your investment is already way up. Do not be too committed to any investment. Instead, take some profits and find another undervalued project. That way, you would also increase your risk-to-reward ratio, rather than hoping for an already pumped project to continue pumping more and more. The crypto market is immature and grows fast, there will definitely be other things that are potentially better to invest in.

Diversification

Same reasoning as the previous point, never be too committed. There is definitely more than one good project out there, spread your risks. Remember to diversify in stablecoins as well, do not just stick to USDT or USDC. Consider having some centralised stablecoins (USDC, BUSD etc.) and decentralised stablecoins (FRAX, UXD, USK etc.) to reduce the risk of losing your money due to censorship or depegs. TheDeFiEdge has some great threads on risk management, make sure to check him out.

Join The Community

Join the discord and telegram channels of your favourite projects, it is the best way to keep yourself updated on what the team is doing. You also get to experience what is the community like, is it the type of community that you are looking for? Or is it just an up only echo chamber?

Wen to Use This Framework

This framework should be used when you are looking to invest with conviction and/or invest a big portion of your money for the long-term. Personally, I have only applied this framework to GMX and KUJI thus far. Besides long-term investing, I do a little bit of narrative trading (following the hype). I do not use the framework for that since the trades are short-term.

Conclusion

With that, I would like to end off by saying, realistically we are not all gonna make it. WAGMI is a meme. Only those that truly put in the work and effort will make it. A lot of people will not last through the bera markets. It is up to you to stand out and to survive until the next bull. Crypto is a very fun and exciting industry. Unfortunately, it can hurt you badly. I hope that this framework will help your investing journey. I tried to insert every point I could think of and hope that everyone can learn from my lessons instead of learning it yourself. There is really no need for you to go to 0 too lol. Do not be lazy when researching high-conviction bets, always keep an open mind and manage your risks.

I would like to thank everyone who has taken the time to read this. If you want to send a token of appreciation to support my work, my public address is:

matrixthesun.eth / 0xcb2E99C9C16404b213E1bA0CAE59a526DA3837cD

Send me a DM if you wish to discuss this framework and share this article if it has helped you! 💙🧡

Disclaimer: All tokens are only used as examples for this article. I do not advise investing in any of them. Negative comments made towards certain projects are only my personal thoughts.