How many times have you tried to learn more about DeFi, including all its bells and whistles and was promptly stopped by someone telling you to DYOR (do your own research)?
Many of us would just keep quiet and bite the bullet to avoid looking like a n00b in front of all these veterans in the community.
Don’t fret. Everyone has been in a similar situation at one time or other. I certainly have and have sometimes avoided uncomfortable conversations and have also pressed on with questions in others — it all depended on my mood on that day itself.
Over time, I noticed that there are certain actions I always took to evaluate projects or new tokens. I have even helped friends who wanted to have a second opinion on whether they should “Ape In” on a new project.
Today, I compiled some steps that I undertake as well as some that others have shared or taught me. Generally, there are a lot of experts in crypto and I daresay that anyone who communicates openly in any forum is a person that is willing to contribute.
First off, a little bit of a disclaimer. There is no 100% surefire way to determine between a legit or a platform that is out to take all your hard-earned money. Things can still go south regardless of efforts put into research. But nevertheless, it is still a good practice to check it out in order to wade through the marketing and hype to identify the blatant scams.
As of the writing of this article, I have taken into account of past experiences leading up to this point and may construe certain events that do apply during this period. Without further ado, let’s move on.
Join project’s Telegram channel
This is almost the most important action anyone can take when evaluating a new project. Red flags to look out for is low user activity or the high presence of “bots” that seem to talk to each other saying the same thing over and over. A healthy channel has both bulls and bears with constant discussions about the near and long term future of the project.
Bonus points are given to developers or staff that are involved in the project continuously engaging with the community. All in all, the main chat has to be a marketplace of sorts, just like Chatuchak in Bangkok. Noisy and busy almost all the time with messages that anyone can just respond to — to keep things going.
Brief look at developer’s activity on Github
Github shows the developer team’s activity and is broken down into “repositories”. Repos as they are well-known for are like different departments in a company. As expected in any company, each department should be busy so we would expect recent activity for any repo in the project.
Since I am a huge proponent of ApeSwap, I will be using them exclusively as an example in this article.
I usually get a little bit more information by looking at the recent activity of the contributors. There is an Insight tab in every repository where you can view different statistics for multiple categories.
I am not a coder so this is as far as I can go looking at github. However, if I was more technically inclined, I would probably examine a bit more in detail if what is being published in github matches what we all see and experience on the actual website.
Basic background check on CoinGecko and/or CoinmarketCap
Everyone loves to see statistics and any serious project would definitely be listed in either of these 2 major data aggregators. Personally I use CoinGecko more often as they seem to have a more technically adept team integrating projects into their website. CoinmarketCap is more “showy” in my humble opinion, focusing more on aesthetics rather than data, which I feel the latter should be more important.
First off would be to look at the general health of the project. I generally look at the following metrics:
- Market Cap
Total combined value of investors monies that have been invested into this token/coin. - Trading Volume
Total amount of USD$ value of trades involving this token/coin for the past 24 hours. - Circulating Supply
Total amount of tokens/coins circulating out there. (In the above example, there is an error as ApeSwap does not have maximum supply. Rather they employ deflationary methods to combat inflation)
Total Value Locked is also a metric that I will look at if it is a DeFi staking platform. TVL is the total combined amount of tokens/coins that are trusted to the platform by users in return for monetary rewards. This is also known as staking or yield farming.
Generally, a growing DeFi platform such as ApeSwap will, over time, see these metrics improving. TVL and Volume has to increase to show that the developers are attracting more users and partners.
Circulating supply is a measurement of inflation and most investors are always watching it closely.
Market Cap is usually associated with the worth or value of the project and should go up/down together with supply and price of the token.
Next up, make sure the project website is shown as the same as what you are accessing. This is to protect yourself from accessing fraudulent websites that are out to steal your wallet’s private keys and ultimately, the funds within.
You have an option to check the project’s Twitter account to assess how active and their recent announcements. I will also recommend to take note of the contract address of the token for another check that I will talk about below.
As we all know, crypto moves at a pace that far surpasses any other financial market. I always advocate a 3 day rule. 3 days in crypto is like a month in a regular market.
Thus I like to view 3 or 5 days charts whenever available. At CoinGecko, you can filter for the past 7 days’ price action. Of course toggle the other options to zoom in or out if you need to. No hard and fast rule here.
Another section I like to look at will be the exchanges that the token is being traded on, and it’s daily volumes. Obviously, the more the merrier here in my opinion. I am a firm believer of user adoption. And being listed in as many places will contribute to the awareness levels of the crypto public.
ApeSwap being an exchange by itself will definitely handle the big bulk of trades. Not to mention that it’s fees are much lower than others and it’s not surprising so see the numbers matching up to it.
Basic token contract analysis
Again, I am not a coder. I use the opportunity to review contracts as a means to fall asleep. However, the is some good information you can extract by just looking at the token contract.
Remember the contract address that was mentioned above? You can plug the address into bscscan.com or polygonscan.com and you will be able to see some statistics below.
As of this current writing, there are actually more than 30k wallet addresses holding $BANANA, the token used by ApeSwap. The line chart also shows a steady increase In the number of holders, which is a positive sign.
There should also be a tab just below that shows the ratio of tokens held by the top 1000 wallet addresses.
Do take note that those addresses that have the contract icon beside it should be excluded from the review. Those are either the Masterchef or the LP pool contracts and aren’t user wallets.
Looking at these figures will give an idea on how much “power” belong to an individual who can, at his whim and fancy, affect the price of the token. The more distributed the token is and the lesser (in percentage) a wallet holds, the less volatile the price will be.
Tokenomics & Roadmap
Every project must have a whitepaper or medium article/blog detailing it’s tokenomics. In this document, it will share the visions of the developers as well as features available to users. I focus on a few things.
Some understanding of the revenue model is useful. No one works for free. And certainly I wouldn’t feel good having my funds in a platform where the developers in-charge tells me they are working for passion only.
As the developers work to bring their platform to the masses, volume goes up as well as the fees that they collect. I’d rather be in this situation that when the developers succeed, I will succeed too as a supporter and user.
Obviously, if the tokenomics look like it is a cash grab opportunity on the part of the developers, I’d be wary.
I also take note of emissions to have a feel for inflation as well as the project’s plan to fight against hyperinflation, which will definitely affect the token price.
Project roadmap is the developer team’s commitment to the community on upcoming features and event that will promote more awareness and/or attract more investments. It is also good to keep the development team constantly innovating and building.
Items on the checklist should be reasonably achievable and must be related to the purpose of the platform.
What you have read up to this point are the “tangibles”, facts or numbers that are presented in the public domain for your assessment of the project. They are also measurable, in the case of roadmaps, so that you can hold the developers accountable for their commitments.
The next few sections are my other forms of DYOR that may or may not apply all the time. These are usually the “intangibles”. Stuff that kind of can’t be measured but they do play a part in determining how cautious we should be when investing.
Inflation rate vs Token price
Everyone wants to win, including myself and the one emotion that I have never managed to control well is greed. In the early stages, I wow’ed at 100% APRs. Then after, I became numb to it and sought out 365% APRs. Greed is never satisfied and I went into farms that offered me 4% DPR (Daily Percentage Rate) and I constantly sought out higher and higher numbers.
It was just a matter of time before I lost heavily and learned an invaluable lesson. Always remember that you are not alone in DeFi and there are many others like you, investing in the same platform.
A high daily rated return would mean that before Day 2, there would have been more tokens minted and circulating than the day before. There are even times when the token price is so high that it only leads to one conclusion — the dump from a whale is imminent.
In such a scenario, the early whale that has been farming will amass a huge amount of tokens based on the high APR and will definitely exit soon and cause a price dump of the token and in turn driving down APR.
I used to tell people to get out before this happens. Today, I tell people not to enter platforms like that. The risk just doesn’t justify the rewards. Consistent APRs and a steady token price is far more palatable to most investors’ appetites.
New platforms vs Risk
Brand new releases are exciting. You can be sure of initial price discovery which may be very profitable. However, it can go both ways and you may be left holding the bag when everyone has got out.
I always tell myself that I am in DeFi not for the quick flip or profitable trade and that I am in this space of crypto to seek a consistent, safe and stable stream of passive income.
So when someone tells me to check out <insert platform name> as they are <insert positive word/phrase>, I may just do a quick check on dappradar.com especially if I am just on my mobile.
Dappradar is similar to CoinGecko and CoinmarketCap, however it focuses on DAPPs across many blockchains as opposed to just tokens or coins.
Here we can see statistics like how much user activity there are and the DAPP’s volume. If it is new, it will be indicated as such. Personally, I avoid new platforms up till the point where I believe they are stable. Exceptions to this rule is when a new platform is part of an expansion to another chain from a trusted platform.
Rugpulls, Exploits and Cash Grab — I am 3 for 3
Not proud to declare that I have experienced all these and the feeling has been very helpless because of the nature of crypto being decentralized. There is no manager to speak to, no authority to chase the perpetrators down and no other option other than to accept it, move on and learn from the experience.
Rugpulls are very uncommon lately. What rugpulls are, is when the developer/s take over ownership of the funds you have deposited into the platform and “run away” with it.
Exploits are loopholes within the smart contract/s, usually economics or math related that can be abused and give somebody massive advantage over the rest of the users in the platform — such as minting a huge amount of the token in an abuse of the smart contract. Once done, the malicious user will then dump everything back into the market and tanking the price.
Cash grabbing developers will allocate a suspiciously huge amount of the token to themselves when the platform launches and dump their load onto investors coming in. This can be coupled with price manipulation by having low liquidity of the token that they are holding, so that incoming users will get a false sense of a massive pump only for the developers to cash out early.
Why are these DYOR, you may ask. Events like these happen frequently and I feel everyone should be aware of it. There is no way to tell if a platform has this risk but there is one statement that rings true and I will recommend that you keep it always close by.
Yes. Longevity definitely is one of the best yardsticks to assess a platform. Fly by night platforms and developers out to yield farm users usually won’t be active for long.
Though not pre-emptive, I do read up news about this topic on rekt.news just to gain more general knowledge. I also subscribe to the Telegram channel of rugdoc.io — https://t.me/rugsteemer to stay abreast of new farms as well as to be notified if any farms have rugged or been exploited.
Another rule of thumb that I adhere to is not to invest in any new platform that looks like a PancakeSwap v1 clone. The website layout is very standard as you can see below. There is minimal effort to fork the old project and create a lookalike with a renamed token and that raises some red flags to me. Coupled with a few of the other suspicious items mentioned above, I think it is just a disaster waiting to happen.
Some platforms have a referral system where a user can get others onboard using their unique referral link and earn a percentage of the referee earnings paid out in the native token. While this is a good way to promote user adoption, it can also be a penalty on inflation, assuming additional tokens are minted just for these rewards.
Lastly, I also steer relatively clear of platforms that have a deposit fee that effectively “locks” my funds for a short period of time or forces me into a minimum locking period.
Basically my main gripe is that for a 4% deposit fee, my funds are effectively locked for up to a week just to break even. Remember the 3 day rule I mentioned prior? That’s what’s causing a bit of discomfort if I should put my funds into the pool/farm.
The duration lock isn’t prevalent these days but are out there. Remember to read and understand what you are getting into.
In summary, everything you have read up to this point are ways to assess and compare between projects.
The research methods are NOT indicative of possible future malicious actions on the part of the developers. However, it should be our responsibility as users to understand what we are investing into. The liability rests on users.
As usual, feel free to drop by the ApeSwap Telegram chat to join my friends and I. https://t.me/ape_swap
If you do feel a strong inclination to send some tips my way, please consider buying and staking some $BANANAs on app.apeswap.finance.
Ironically, I will sign off this article by telling you this.
JP (Derek)
