Investing in a new crypto project is exciting, however, you need to do some homework first, says Dmitry Mishunin, the founder and CEO of DeFi security and analytics company HashEx.
Crypto projects can turn out to be a profitable investment, but there is always the risk of losing your money with them for various reasons. These can range from an inside job to an elaborate cyberattack. If you want to get a decent return on your investment and protect your funds from loss, it is very important to do your own research on crypto projects before investing in them.
Let’s take a look at some of the things that you need to pay attention to in order to invest your money wisely and into a good project.
Investing: The steps to choose the right crypto project
1. Study the website, whitepaper and project roadmap
Here, you should look for clear answers about the purpose of the project, its scope, and the long-term goals and plans it sets.
2. Investing: Study the partners.
At this step, you need to look at the funds and other projects that have supported the project. First you can check this on the project’s website, then double-check this information. If you don’t find any reputable funds that have supported the project you’re assessing, it might be a reason to abstain from investing your money in it.
3. Investment: security audits
Next, find information about the project’s MVP and security audits. If the project has carried out one or more audits for its product, this information will be easy to find. Smart contract security auditors normally publish audit reports on their websites, and links to these reports are also present on project websites.
Here it is also important to pay attention to the choice of auditor because some auditors are not quite as professional as others. If you see that the audit has been made by an unknown firm, it might be a reason for doubt. However, if the audit has been made by a reputable top-tier auditor, it is a positive sign of the project’s commitment to its declared purpose.
4. Check the project pages on social networks
Here you will have to analyze the project community on Twitter: see how important and involved it is. Also try to browse the followers and see if any influential people are following the project.
Then check the project’s Medium account. There you will be able to see how professional and involved the project team is by looking at the articles they post there.
If you see that the project community on Twitter is active and growing gradually and that the team is making regular updates on Medium, that’s a good sign.
5. Check if the project has an ambassador program
It allows the members of the community to become the project’s ambassadors and promote its mission and presence. If the project is not serious about staying around for the long-term, it will likely not bother with making an ambassador program.
6. Invest: check test nodes
Next, you need to check if the project has its own nodes to test its product. Nodes allow you to test your product with greater efficiency, so their availability is a good sign as to the seriousness of the project.
7. Study the team
Go through the social pages of the project’s top management on Linkedin and Twitter. Most good projects have teams that are transparent with their social networks. Check their previous professional experiences, cross-reference this information with what they are doing within the project.
8. Competitor Research
Find the competitors of the project and try to compare the project you are analyzing with them. Try to identify the strengths and weaknesses of the project. This will help you decide if the project has enough advantages for you to choose it over the others.
9. Token distribution
Find information about the project’s token distribution: the allocation and the vesting period for the team, the allocation for different investment rounds and the token’s price. You will also need to know what kind of vesting period is stipulated for investors and which platforms the token sales will be held on.
10. Choose the ride
If you have decided to invest in a project, you must now choose the investment round in which you wish to participate. Try to find the right balance between the entry price and the investment amount.
11. Risk management
If you want to invest a share of your capital and diversify your portfolio, you should determine the share of your portfolio you are ready to dedicate to the project in question, considering your overall investment strategy.
Investing: Final Thoughts
When choosing an investment project, only the investor knows what suits him best. Therefore, you should always do your own research on the projects you want to invest in and try to do so diligently. Try to keep a cool head and not get carried away with the impression a project is trying to make on you from a marketing perspective.
Above we have covered some of the most important elements of any project that you should assess. By spending a reasonable amount of your time on doing some background research, you will be able to get a fairly decent understanding of how worthwhile the project you’re looking at is.
Also, use common sense and stay disciplined by following your profit/risk strategy while making your investment decisions. And remember that the long-term success of an investment largely depends on the discipline with which you apply your investment strategy.
