Hint: It’s not relentless marketing and constant feeding of hype cycles
Five components of project evaluation:
- The project is live and has existing users
- Well written high-quality white paper
- Demonstrated understanding of the landscape of possible competitors, substitutes
- Unique Value Proposition
- Open Source
When evaluating projects I want it to be live with demonstrated usage. Getting actual users on your platform is a milestone most cryptoasset projects have failed to achieve and is a clear signal a project is onto something.
The best part is by the time this happens the hype cycle has often moved onto the next big thing. So you can often scoop up promising cryptoassets with actual users at a heavily discounted price versus the level it traded at shortly after it ICO’d.
Having users is also a strong signal a cryptoasset isn’t fraudulent. While it appears the days of putting out a well written white paper and raising millions of dollars are receding to a degree. You still need to be careful out there given the lack of standards. A cryptoasset with users is much less likely to be a scam than an ICO raising money for something that isn’t built yet.
Well written high-quality white paper
Another sign a cryptoasset isn’t a scam is a quality white paper. White Papers should outline a concise clear vision for the project and should not be marketing focused and buzzword-heavy.
Unique Value Proposition
Projects worth investing in require a unique value proposition. Turns out Bitcoin transactions weren’t quite as private as everyone thought. Monero, Dash, and Zcash viewed this as an opportunity to create currencies layering in additional functionality to provide more anonymous transactions for their users. Each takes a different approach which is effectively their unique value proposition.
Demonstrated understanding of the landscape
These projects demonstrate an understanding of the numerous competitors and substitutes in the crypto payments space. Convinced they have identified a problem their technology is uniquely well situated to tackle. Frequently communicating the logic of why their solution is preferable to competitors.
Hand in hand with the importance of team transparency goes project transparency. I am much less skeptical of projects with open source code. Their code is accessible, so intentions, positive or negative, are more easily discernable.
If members of the project team would lose interest, continuity has a higher probability of being achieved when the source code is readily available.
Open Source does have its drawbacks. Source code can be forked leaving the possibility a cryptoasset could be surpassed by the fork if the fork offers a superior value proposition.
I do not view this as a high-risk factor though. Not only does the fork need better ideas than the original. It also needs a project team more capable than the core team for the original cryptoasset to surpass it.
To date, I am not aware of this happening and at this stage, this is less of a concern to me than lack of visibility.
Generally, forks have only occurred for the largest most established projects.
As of now none of these forks have surpassed the original.
The air drops of new tokens have benefited investors in the original coin. Whether they have chosen to sell them and reinvest in the original or hold onto them.
If forks of mid-tier coins would start to occur frequently and some forks start to surpass the original’s adoption this thesis would need to be revisited.
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