The phrase "DYOR" is frequently heard in the digital asset world, but what exactly does it mean? Figuring out how to perform the investigation to invest in a fresh, new, and technologically advanced field is sometimes the most difficult component for newbies.
Evaluating Digital Assets
It can be difficult to conduct your own study on digital assets. One reason for this is that no one knows how to value these protocols. The procedure of appraising typical corporations that publish financials on a regular basis is still hotly discussed among finance professionals. This means that there is no single correct approach to evaluate these assets, and each view contains personal taste.
In this essay, I'll walk you through my personal process for assessing
It is vital to note that everyone values these assets differently, and it is not a good idea to directly replicate someone else. Most people who lose money in the digital asset industry don't comprehend what they're investing in because they blindly accept what others say. This is why it is critical to conduct YOUR OWN research and form your own judgment after properly immersing yourself in the subject.
When investing in any asset, regardless of the size, assume you are buying 100% of the company yourself. This puts you in the mentality of needing to completely comprehend how the business operates and where the money goes and comes from.
The Whitepaper
One of the first places I like to start my investigation is with a whitepaper. In my perspective, a whitepaper should simply clarify everything about the protocol. This includes everything from how it operates technically to the finances to the future vision. A critical point here is that I only want to invest in teams that know their product well enough to explain it to a 12-year-old foreign youngster. The whitepaper should answer 90% of my queries in a clear and succinct manner.
If a whitepaper sounds extremely technical, fails to answer key business problems, or sounds like a sales pitch, I flee. This strategy has more than likely resulted in the loss of one or two good investments. Rules are important for a long-term investing strategy.
Some questions to consider while reading the whitepaper are...
- What problem is this supposed to solve? Is it a genuine issue that necessitates the use of blockchain technology?
- What precisely do they do? Completely understand.
- What is the token economy like? (More on this later.)
- Who is in charge of this?
- Who are the backers of this?
- Was the whitepaper easy to comprehend?
After reading the whitepaper and potentially doing some light googling on the technical side of the software, these questions should be easily answered. The token economics may be the most essential component of the whitepaper.
The Economics
Tokenomics is a term used to describe economics in the digital asset industry. This is how the token works in practice. It is critical to understand that investing in a cryptocurrency is not the same as investing in a stock. You are not purchasing protocol ownership, but rather the digital token that often fuels the protocol's ecosystem.
It is critical for any investor to understand how the protocol and token interact with one another. Some ecosystems revolve entirely around the token, whereas others merely use it for specific behaviors. Understanding how and why the token's price moves is probably the most essential component of the research.
Good questions to consider while investigating tokenomics are...
- How does the token price fluctuate?
- What is the source of money?
- What happens to it?
- Who has access to the money?
- Is the token distribution equitable?
- When are monies vested or locked up released?
- Economic deflation or inflation? How far does it go?
The whitepaper should make these points very clear. Where does the money come from if there are rewards? If there are any network costs, where will they go? Knowing where every dollar goes and where it comes from as if you owned the entire company is the greatest way to approach this process.
If a small number of people have too much influence, token distribution alone can make a decentralized system centralized. This would allow the group to manipulate pricing as they see fit. Tokens are frequently handed to early investors and the team, and two things should be noted here. The first is the quantity; if fewer than 60-70% of the tokens are distributed directly to the retail community, the team may have too much power over the token price.
Second, token vesting for early investors is frequently used, which means that although investors acquire the tokens, they cannot sell them for a set amount of time. These vesting periods can have an impact on the price if there is more supply than usual hitting the open market, making it a good indicator to watch.
The Team
The team is a key part of the project and is frequently where red flags can be found. To make a smart investment selection, an extensive study of the team is essential.
- Do you wish to work with these people?
- Would you put your trust in them if you were the boss?
- Would you trust them with your money?
- Would you recommend that your mother invest with them?
These are the three most important questions to ask about any team before purchasing it. Verify names and previous accomplishments, locate alternative social media pages, and conduct a few Google searches. A brief search might sometimes reveal past dubious activity.
The team should be professionals and experts and have a history of being able to deliver products. Only invest in people that you have the utmost confidence and trust in.
The Project
The team should consist of professionals, specialists, and people with a track record of delivering things. Only invest in those in whom you have complete faith and confidence.
A MOAT, as it is popularly known, is a crucial aspect of the project. This refers to the ability to maintain a competitive advantage over competitors.
- What sorts of partnerships and endorsements have they received?
- Is the community large? Active? Growing?
- Is the community there for the project or there to flip for a quick buck?
- Are any big-name investors aligned with the company?
- What sort of market is the project in?
- What's the competition like? What advantage does the project have over others?
- Is there a solid, growing developer network? Are developers prioritized?
The Potential
Utility. Web3's new favorite word. Don't be deceived by large phrases and a whitepaper full of the term "utility." Assess the protocol's potential for yourself. What is the utility offered, and is it genuine? Companies in the Web3 domain frequently use the term "utility" when discussing a random airdrop that delivers no utility.
Utility implies that you get something out of it. Utility implies that even if you are no longer interested in the digital asset, someone else may be interested in it because of the utility it gives. Examining the potential slightly contributes to determining the best feasible investment by evaluating the competition and market area the project is in.
- Why is it superior to a Web2 solution?
- What is the size of the market?
- Web3 competition that is relevant?
- What utility is completely guaranteed? What service is promised?
- Is this the best choice?
Cryptocurrency v NFTs
Cryptocurrencies are fungible tokens, whereas NFTs are non-fungible tokens. This simply means that NFTs are unique, but every cryptocurrency (such as Bitcoin) is the same.
When investing in NFTs, the whitepaper is crucial, as is a doxxed team (not an anonymous team with NFT images). The general community of retail investors is critical for NFTs, and if true utility is supplied, the benefits can be enormous. Art and the physical appeal of the picture connected with the NFT are also important factors in project success.
Investing in cryptocurrencies is a little different. Less about the retail community and more about the development community, solving a problem, and gaining a competitive advantage are all important aspects of cryptocurrency. Whitepapers are an important part of cryptocurrency, often giving much of the information.
Investing in digital assets requires a thorough grasp of the protocol, token, and project in general. It can take anywhere from 6 to 24 hours of research to gain genuine confidence in a position. The time ranges are determined by prior understanding of the specific technology as well as past industry information.
After conducting the extensive study, the greatest recommendation is to disregard your investments. Check each individual investment once a quarter or bi-annually to ensure that the investment thesis has not altered. Aside from that, devote 3-4 hours per month to general industry/portfolio research. This will help you avoid missing important news or getting caught off guard by market fluctuations.
Before going into the study, it is critical to grasp blockchain technology in general. Understanding how blockchains work, smart contracts work, and the
For media, content, or writing inquiries please contact Patrick Hagerty at PatrickJHags@gmail.com