Key Takeaways

• Knowing the founder and the founding team is one of the most critical steps in evaluating a Web3 project.
• Determining the availability and strength of communities around a Web3 project ranks among the top best practices as most of these projects including DAOs, blockchains, DeFi protocols, and NFT projects thrive on vibrant communities.
•  Auditing of smart contracts must be given priority during evaluation to determine if there are any bugs that pose a threat to the project's safety and transparency.

Introduction

Determine the Utility of the Project

• For decentralized finance applications (DeFi), the following key growth metrics should be determined: total value locked, active wallets, and the number of integration.
• The total value locked metric is used to determine the overall value/utility of the Web3 assets deposited in a DeFi protocol. Daily and monthly active wallets have replaced the traditional daily and monthly active users and should be used as a metric to determine the success of a Web3 project. Quality and number of integration is the final metric for DeFi applications as it shows the total DeFi integration with other wallets, DeFi products, and exchanges.
• These metrics are important as they show the investor the potential return and value proposition of the project in the current market. Projects with higher utility tend to attract bigger communities, increasing the investors' potential return on investment.

Identify Factors That May Pose a Risk to the Project

• When evaluating a Web3 project, one should focus on all risks that can be identified. However, there are three primary risks that any investor must look out for: smart contract risks, price fluctuations, and lending and borrowing risks.
•  Study the project tokens well because there is a possibility of gaining and maintaining its momentum in the market and the opposite is also a possibility.
• Ensure that auditing and verification of the project are done to identify any smart contract risks resulting from bugs with the ability to cause vector collision of arrays.
• Finally, Web3 platforms should be safe from lending and borrowing risks, hence one should identify mechanisms that prevent its community members from withdrawing their tokens at once.

Identify the Community Surrounding the Project

• Identify who the project developers are, the community built around the project, and the transparency in operations around the project. Doing a background check on the founding team members of the project is important as it helps to determine their involvement and experience in the Web3 space, helps trace projects they have been part of, and helps locate their online footprint which can be used to determine if they are real dealers or scammers.
• Be keen with project developers who rely too much on pseudonyms with little or no digital footprint. This may signal a lack of experience in the space or are fake profiles meant to dupe investors.
• Find out the strength of communities built around the project. Strong communities exist across different platforms like Twitter, Reddit, and Discord among others. This is important as communities help projects grow by offering honest feedback, identifying faults in a project, or offering validation.

 

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Market Timing

•  Is the time right for the project and does the world need the solution? To find clues on how to answer this, one should evaluate trends, macro, and culture.
• This is critical because the time of entry into a market determines your probability of being a dominant player or just a price taker fighting for market share. Being too early can be challenging as it becomes costly trying to get the market to adopt your product. It is, however, advantageous if the market adopts the product or solution making the project a dominant player in the field. This increases the possibility of returns on investment.
• An example of a project that was conceived this way is NVIDIA's CUDA which was launched in 2007, way ahead of its competitors which has made NVIDIA one of the most valuable companies in the world.

Understand its Road Maps and White Papers

•  The white paper provides an overview of the problem that the project seeks to solve, the vision, tokenomics, and the solution that the project presents in response to the identified problem.
• The project road map is important as once the community has been established and transparency assured, it offers the investor a preview of what path the project wants to take towards its success. The white paper and road map enhances transparency in a project as the investor can see clearly what strategic direction the project will take, the risks and opportunities associated with the project, and any plans available for scaling and implementation of the project.
•  Unclear road maps and sketchy white papers can act as red flags, hence guiding the decision of the investor.

 

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Research Strategy