We have all heard it, right?
“Here is our amazing NFT project with amazing returns, before investing DYOR”
It is nice that everyone warns us to do our own research on crypto projects, but there is one significant problem with that advice.
What exactly is doing your own research entails?
- Is it a simple website check?
- Is ask your buddy?
- Is it a quick check on twitter to see who follows the project?
- Is a full audit of the contract?
The truth of the matter is that we all have different tolerance for risk which leads us to different levels of how we Do Our Own Research. No two people are going to do research the same.
Because there is no real instruction or method to doing your own research, the better researchers are less likely to get scammed while the poor researchers fall victim to many of the NFT and Crypto scams.
The guys at Apeinto, have come up with a more structured approach. This is a great way to adapt your research method to a consistent approach so that you value all projects equally and lessen the chance of FOMO and poor investments.
Their system breaks down critical components of a project and assigns a score based on criteria in each component. If you are interested in the full details of their system, you can read about it here.
Their system may be far beyond what the average person is willing to do or has time to calculate, but we can still apply the principles to make sure we have a consistent approach when doing our own research on crypto projects.
Never test the depth of the river with both of your feet.
Warren Buffet
CONTENTS OF ARTICLE
CREATING A “DYOR” SYSTEM FOR CRYPTO AND NFT PROJECTS
Below we have broken out some of the minimum research items you should consider when looking at new crypto and NFT projects. These are the things that are important to understand and can open the door for further questions you may have. By no means is this list the end all list, it is merely a beginning framework for your unique own DYOR system.
TEAM
Behind every project there is a team. In some cases it might be one person (like an artist NFT project) or it might be dozens of developers with a full company supporting the project.
The team is responsible for supporting, growing, and maintenance of the crypto project. A team without proper resources to deliver the roadmap is going to have a hard time. Similarly a well versed team that overlaps well with the roadmap increases the chance that items in the roadmap will be met.
When doing your research, knowing about the team can help you understand how they will perform and handle challenges. While we can never get full disclose on a project team, there are products the team produces that we can look at. These products can give you great insight and help you identify strengths and weaknesses.
Here are some things a Team produces that are easy enough to research on your own:
WEBSITE RESEARCH
One of the most public aspects of a project team. Take a look at the grid below to see where strengths and weaknesses might fall.
| Poor Confidence | Moderate Confidence | Good Confidence |
| Garbage Website with no design and very little information | Average website, good navigation but lacks detailed information | Modern, detailed, functional, and proper information about the project |
| Brand new domain | Domain less than one year | Established domain |
| Website is a copy of similar projects or just repeated information | Website is original with good syntax | Website is original with content that is unique to the project and helpful |
DOCUMENTATION & ROADMAP
Another highly visible item. If someone is asking you for an investment, then you should understand what the investment objectives are.
| Poor Confidence | Moderate Confidence | Good Confidence |
| No roadmap | Simple roadmap | Detailed and original roadmap |
| No Documentation | Some documentation | Documented processes and tokenomics, FAQ, ect. |
| No References | Some References | Referenced and solid factual statements |
TEAM MEMBERS
In this section, is there any information about the actual team. Who is the founder, who are the developers, who else is participating?
| Poor Confidence | Moderate Confidence | Good Confidence |
| No Public Team | Visible team with social media but still largely unknown | Team fully known and represented by other projects and social media |
| Small Team With No Resources | Proper resources but maybe short in a few areas | Full team with proper resources and channels to build, promote, and deliver |
| Large Team but no identity, no social media, and no references | Large team, with social media but may be lacking verified accounts, some references | Large team fully referenced, established social media, and highly visible |
PARTNERS
Not always shared, but if you can find out who the partners are, you can understand where they might get extra help.
| Poor Confidence | Moderate Confidence | Good Confidence |
| No visible partners | Some influential partners | Full list of partners with resources and history of supporting other projects |
| No visible investors | Listed investors, but quality may not be known | High quality firms that have proven track records |
SAFETY AND SECURITY
When doing your research, special care should be taken to understand the safety and security of a particular project. When looking into this section, you want to look for any potential areas where funds can be taken, connections to scams, poorly written contracts, or non-secure sites. Two mandatory checks must be looked at for all projects:
SMART CONTRACTS
How important is the Smart Contract in the world of Crypto?
$34 Million was locked into a poorly written contract term in the AkuDreams smart contract.
AkuDreams is a 3D astronaut-themed NFT project launched by Micah Johnson, an artist and former professional baseball player. The project consists of 15,000 Ethereum (ETH) avatars with randomized traits. The error in the contract means the $34 million can not be recovered from anyone, including the developers. A few bad codes and some bad math resulted in a significant loss of money.
Smart contracts are what power the terms of the NFT or Crypto Coin. Smart contracts can be manipulated in many ways by founders, hackers, poor coders, or other entities. When reviewing the contract of a project, more confidence can be added if an audit of the contract has been done by a reputable firm. As always, you should review the contract itself and do some simple searches about the contract for the project you are interested in. Look for audits, testing, and red flags.
Some potential red flags in contracts:
- The ability to manipulate token supply
- The ability to mint new NFTs after original mint
- Ability to modify tax, transaction, or sell orders
- Disable trading for all
- Direct address included in reward pool
- Ownership of the contract
- Transfer forwards all gas
- Send instead of transfer
- Unchecked math
- Address hardcoded
- Locked money
- Private modifier
- Unchecked external call
- and many more, read this guide on how to Audit a smart contract.
WALLETS
When looking at a project, be sure to confirm that none of the attached wallets are scam wallets. This simple check can save you investing in a project built by scammers.
Secondly, pay attention to the whales. Their ability to manipulate the prices and perform pump and dumps is directly related to the amount of liquidity they control. Projects with poor liquidity, controlled by a few wallets can be manipulated at your expense.
Lastly, websites should be secure, should not ask you to do strange things, not be locked into some platform you never heard off, and they should never conceal key elements of the project.
Checking wallets can be done on sites like etherscan or check out this post about how to find scam wallets.
POTENTIAL VALUE OF PROJECT
DYOR’s tend to get this wrong a lot. It is extremely easy to buy into the hype of a project based on some tweet, a friend’s recommendation, or one influencer pushing a project. We are all guilty of hopping onto the hype train and ignoring the true value of a project.
In order to filter out the noise from reality, we must have a logical approach to analyze the potential value from the hype that is being created. While there is no perfect formula for finding true value, there are some things to consider that increase the long term success of a project.
What does the project bring to the table?
- Does it solve a community problem?
- Does it offer a product, service, or some other tangible offer?
- Would you pay for the product if there is one?
- Is it different from other projects?
- Does it do some good for anyone?
- Is there a reason to buy into the project?
- If it is an art NFT, who is the artist?
- Do they have a following?
- Do they support their prior projects?
- Are people interested in their art?
There is a lot of debate on the utility of an NFT or Token vs. non-utility. Many claim that NFTs represent art and there is no responsibility to provide utility. Others say every NFT should provide utility. While both sides can argue to the end of time, as an investor two things should be crystal clear:
- No utility/product means the price is 100% dependent on what others think the value is. If the community disappears, so does the value.
- Projects with utility/products pass some of that value through to the NFT/Token which gives incentive to hold or can create some minimum value.
Be careful, however, just because a project has some utility does not make it good. That utility needs to be in demand, sustainable, and recognized. Without those three components, it really does not add any extra value vs. a non-utility project.
For example, if you buy an NFT that has the utility of getting you a free financial seminar, what is the value? Maybe it is from a group that sells their seminars for $5K each and gives you the secret of life. Maybe it is a group that nobody cares about that is going to give you a seminar that is a waste of time. If the former is the case, then your NFT in theory is worth at least as much as someone is willing to pay for that seminar. If the latter is the case, no one would buy that seminar and theoretically the only value your NFT has is the value the community has collectively assigned to it.
A BIT MORE ABOUT UTILITY VALUE
Some NFTs promise rewards, others can be staked, some get you benefits in play-to-earn games, and even some help offset carbon emissions. Value of the utility can be a true reward (like staking rewards) or it could be a non-tangible thing (like carbon offset). In trying to value the utility remember the three things mentioned above:
- Sustainable: The utility has to be sustainable. If you are promised $500 a week but only paid $50, what is the catch?
- In Demand: The utility has to be wanted or have value to someone. A product or service with no demand is not really a product or service.
- Recognized: The utility has to be visible and confirmed. If the utility is going to offset carbon emissions, that is great, where is the proof and exactly how is that going to happen.
COMMUNITY FOLLOWING
The last important item to discuss is the size and activity of the community. This is important for several reasons.
- It creates demand
- It creates liquidity
- Success spreads faster to bring new investors
If you see a project releasing 10K NFTs in their mint and they only have 100 community members, it will probably be hard to sell out the collection (even if those 100 are the most dedicated fans of all time).
Doing your own research in this are involves a deeper understanding of the community in the following ways:
SIZE OF COMMUNITY
From a community of one to a community over 100K, the size and type of community is going to have a large impact on the success of certain aspects of a project. It is important to note, size is not everything.
In today’s technology, while it takes work, it is possible to create a “fake” social presence to appear that there is a large community. This can be harvesting bots, buying fake followers, and other techniques to inflate social following numbers.
Pay attention to the type of accounts. Are they random? Do they seem to fit the project?
ACTIVITY OF COMMUNITY
This is a bit more difficult to fake. A strong community should be active, have good discussions, and come from a variety of participants. What you are looking for is the difference between pure hype and a community that asks logical questions.
If every post you see is just stating how this project is going to moon, that is great, but you need more than that. The more hype there is, the more justification you must find.
Lastly, the moderators should be active as well. Do they only appear to hype or do they make an effort to explain things? How active are they? Are they only active during hype phases or during pre-releases?
These are all things you should consider when trying to gauge how strong the community is. Often some simple things you can try is to simply ask your questions to the community. Did you get a quick response? Did you get called a name? Did more than one person try to help you? These are all important indications of the community and what you might expect during the life of the project.
TAKEAWAYS OF DYOR
Unfortunately we do not have all the tools or time to properly vet every project we decide to invest in. That does not mean, however, that we should blindly take some unknown advice or follow the hype train.
Depending on the size of your investment and your risk tolerance, it is a good idea to formulate a non-biased system that you apply to any investment. The higher the investment falls on your risk tolerance, the more scrutiny you should perform in each of the sections above.
You can use this template to build your DYOR process:
| Category | Rating/Score/Confidence | Red Flags |
| –Website | ||
| Quality | ||
| Originality | ||
| Syntax | ||
| –Documentation | ||
| FAQ | ||
| Roadmap | ||
| –Team | ||
| Size | ||
| Skills | ||
| Known | ||
| Partners | ||
| –Smart Contract | ||
| Audited | ||
| Tested | ||
| Community comments | ||
| –Wallets | ||
| Account Wallets | ||
| Whale Wallets | ||
| –Value Potential | ||
| Utility | ||
| Product | ||
| Following | ||
| Community Value | ||
| Art Originality | ||
| -Community | ||
| Size | ||
| Activity | ||
| Participation |
By no means is this an end all list of things you should check for, but it will get you started on the types of things you should look at.
Even with the best research, no one can really predict what will succeed and what will flop, however, with the right research we can minimize investments into scams or poorly run projects.
Stay safe and as always DO YOUR OWN RESEARCH!
