Learn to evaluate cryptocurrency projects from 7 perspectives and develop your own investment strategy.

23-02-27 16:00
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Source: The DeFi Edge
Translation: Cecilia, bfrenz DAO

With the continuous fermentation of hotspots such as Ethereum L2, Optimism, Coinbase L2 network, DeFi has regained widespread attention, and more and more new and highly potential investment opportunities have emerged. However, for beginners, understanding and participating in the DeFi world can be confusing, and they may be overwhelmed by information and unable to find investment direction.

This article is a beginner-friendly DeFi crash course guide, aimed at providing guidance and assistance to those who want to start exploring DeFi and understanding how to make meaningful investments.

In this guide, you will learn how to evaluate DeFi projects and develop your own cryptocurrency investment strategy. If you are a cryptocurrency novice or an investor considering entering the DeFi field, this guide will be helpful to you. This way, you don't need to rely on complex information from the market or big players' calls, and you can analyze rationally on your own.

ps. Although this article uses DeFi as an example, most of the evaluation perspectives mentioned in the article are applicable to other projects in the industry. For reference purposes.

如何从 7 个角度评估加密项目?

The process of evaluating a blockchain investment is more important than the result.

In this industry, anyone can have a few lucky trades that yield good returns. However, consistent profitability is difficult and requires careful consideration in designing your investment logic and system. If you rely solely on others' analysis, you will not have any advantage in the market.

Therefore, it is crucial to evaluate the entire investment process yourself.

This article helps you evaluate from 7 perspectives

These 7 perspectives are: 1. Product, 2. Founding team, 3. Finance, 4. Token economics, 5. Risk management, 6. Positive news, 7. "Speculation economics".

Reading time: about 10 minutes.

1. Viewing protocols from a product perspective

You need to understand why this protocol needs to exist.

1) What problem is it trying to solve?

2) Is this an idea or is there a working product?

3) How does it solve problems better than its competitors?

Experience the protocol firsthand, for example, how does it feel to participate in the community and how smooth is the airdrop process?

Conduct SWOT Analysis

SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) helps identify an organization's strengths and weaknesses. Traditionally, it is used for internal improvement within a company. DeFi players can also use it to help analyze protocols.

如何从 7 个角度评估加密项目?

More key questions about the product

- What is the size of the market?

- What are its weaknesses?

- Whether the product/market fit has been achieved?

- So far, how is the project execution going?

- What is the user's evaluation of the product?

- Daily active users; how fast is the growth rate?



II. Founding Team

The survival of a protocol is closely related to its founder, without regard to the context or industry-specific terms and names. English words and capitalized phrases such as ZKS, STARK, and SCROLL should not be translated or omitted. If the content contains only punctuation marks, the marks should be returned as is. HTML tags such as

, , , and

should not be translated. If an HTML tag contains English characters, they should be omitted and returned as is. The content within an tag should be preserved and not translated. All Chinese characters should be translated.

Pay attention to the following points:

- Founder's skill set

- What is their past experience?

- The fit between team, product, and market.

- Is there long-term financial coordination?

These questions can be answered by listening to interviews, conversations, and other sources for clues and answers.

When you get to this point, you can also think about what kind of founder is good?

Other Key Personnel

- Who were the early supporters of this protocol?

- Are there any well-known seed investors or venture capital firms?

- Does the protocol have any significant partnerships?

Early supporters and partners can conduct more in-depth due diligence than you (in theory). So make good use of their screening mechanisms.

If the supporter is anonymous, that's interesting too.

Three, Financial Indicators

Risk investment funds, Ponzi scheme economics, and Token inflation may temporarily hide protocols without strength or sustainability.

But ultimately, all protocols are businesses. Projects need to generate revenue in order to survive in the long term.

This is where you start analyzing indicators to determine if it is a viable business.

如何从 7 个角度评估加密项目?

Some key financial indicators that can help you make decisions

- Total Value Locked (TVL)

- Profit

- Trading volume

- Income

- TVL Growth Trend

- How much is the reserve fund? How long can it operate?

- What are the funds reserved for Token ? Don't have too many local Tokens .

You can use protocol dashboards such as Dune, Token Terminal, and DeFiLlama to view this information.

如何从 7 个角度评估加密项目?

Be wary of "brushing scams"

If there are short-term incentive plans such as airdrops, competitions, or bonus rewards, the protocol may experience a surge in activity.

The problem is that once these users lose their rewards, they will disappear.

For example, take a look at what happened after the end of Optimism's Quest program.

如何从 7 个角度评估加密项目?

Four, Token Economic Model

This is the part that confuses most beginners.

An agreement can be well-designed, but if the economic model is poor, it may still fail as an investment.

If you are not familiar with this basic knowledge, you can read this tweet about Token economic model: https://twitter.com/thedefiedge/status/1511737802655903744?s=20

Key Token Economic Details

- Token Issuance Rate

- All diluted valuations

- Why do we need Token?

-Internal staff Token When will it be unlocked?

- What percentage is allocated to internal personnel?

- How to increase the value of Token?

- How can protocols reduce selling pressure?

There are many pitfalls in here, be careful of intentionally laid traps, do more research before buying.

Don't just look at the good side

When you are extremely passionate about a protocol, it is easy to fall into an echo chamber.

Not only do you need to understand and respond to your opponent's views and arguments, but you also need to express them in the most powerful way possible in order to have a more in-depth and constructive discussion. Sometimes, it is necessary to actively seek out FUD (fear, uncertainty, and doubt) - you should be able to better refute the shortcomings of the project than its biggest critic.

Understanding the shortcomings and potential disadvantages of a project is a way to establish trust in the project deeply.

Five, Risk Management

- What is the audit status of the protocol?

- What are the unknown risks?

- Does the protocol's treasury have sufficient funds in reserve?

- What regulatory risks might protocols face?

- Does Caiku have multi-signature protection?

Good risk management is behind good investment.

Future Plans

When others buy, the price goes up, and others buy because of interesting bullish news or stories driving it.

In theory, this should be indicated in the roadmap.

The reality is: Dapps are not organized. To find clues, you must delve deep into their social media, Twitter, Discord, and interviews with founders.

Six, Positive News

Some examples of "positive news" (catalysts, referring to events or factors that trigger price fluctuations or market changes).

-Strategic partnership

- Main Protocol Update

- High visibility endorsement or mention

- Positive regulatory development

- Market expansion or adoption by new user groups

Not all positive news has equal effects.

If it's just a website redesign, then this news isn't as important. You need to find more powerful positive news.

Two examples can bring significantly positive impact of good news:

1) Tron announced that it will provide a payment framework for artificial intelligence systems.

2) Amazon wants to enter the NFT field. Regardless of which blockchain wins this contract, there will be a huge price increase.

如何从 7 个角度评估加密项目?

Seven, Speculative Economics

Pumpnomics refers to various forces that drive investors to buy frantically, commonly understood as "speculation", a neutral term. Even if a protocol has no fundamentals, its price may soar. Meanwhile, a protocol with excellent fundamentals may not make any progress.

Therefore, Pumpnomics is not just a marketing strategy, but all factors that could lead to a buying frenzy.


Looking for narratives that may lead to community hype

- Zealot

- Good story

- Good brand image

- Tribal-style community

- In response to real-world hot topics, such as artificial intelligence.

- Public support from influential bloggers, KOLs, and big Vs in the industry.

- US (crypto natives) vs. THEM (traditional world personnel who want to benefit from it)

Pumpnomics aims to identify various forces that can trigger buying frenzy, which are not only marketing tactics, but also include a series of community behaviors and market psychology. When searching for these forces, it is important to pay attention to the patterns mentioned above.

During a bear market, it is important to look for tokens with solid fundamentals, such as Frax, GMX, and GNS.

In a bull market, it's best to be "a little stupid" because "speculative economics" is more important in a bull market. Ordinary retail investors cannot understand complex mechanisms. They just want a simple narrative.

Above are the standards for evaluation projects that I provide to new friends in the industry.

Ultimately, when you are investing and doing your own research (DYOR), the protocol you invest in should also meet your investment needs and serve you.

There are some things to pay attention to in this regard.

Eight, Others

Portfolio Construction

Consider how this investment fits into your overall investment portfolio.

- Are you over-allocated to an industry?

- How does this investment affect your risk?

- Is the size of your bet suitable for this risk range?

Your Trading and Your Mindset

- Are you too confident?

- Have you rushed into this trade because you're afraid of missing out? Are you experiencing FOMO?

- Are you in the right mindset for investing? If you have already suffered losses and are engaging in revenge trading, you may not be ready to invest.

Regarding the psychology of investors, you can refer to the previously shared tweet:



translates to

Cognitive Bias

in English.These are systematic errors that are easy to make when thinking.

Two of the most common ones are:

1) Authority bias - For example: "A large venture capital firm has invested in this project, so it must be great and guaranteed!"

2) Anchor deviation - For example: "This Token has dropped 95% compared to its all-time high price!"


Even if your investment thesis may be correct, if you don't enter at the right price, you still won't make money. Therefore, understanding the timing of investment is crucial. Consider these two questions:

1) Where are we currently positioned in the overall cycle?

2) How do you feel about the early stage of this statement?

The advantage that timing brings to you is knowing information that others may not realize until later.

This is an investment or a trade?

The main difference lies in the time range and risk tolerance.

If this is a long-term investment, such as Ethereum, I may not sell when the Ethereum price drops by 50%, but instead may buy more and invest more funds.

Profit Strategy

Your stop loss point is what? For example: "If it falls 15%, then I will sell my position."

Your profit point is what? For example: "When it doubles, I will sell half of it into USDC."

Determine your system before entering the market. Otherwise, you will make emotional decisions and not make money in FOMO.

This is my argument when I invested in GNS last summer:

"Compared to GMX, the valuation indicators are undervalued. Differentiated advantages are obtained through foreign exchange and more leverage. The good news is the shift to Arbitrum's multi-chain solution. The team is expanding."

Some people have suffered losses when trading and using leverage. If they buy physical ETH and hold it, they may earn more money.

According to my example and some evaluation indicators in this guide, you can also learn to generate your own key investment arguments.

如何从 7 个角度评估加密项目?

Finally, compared to ETH

If the DeFi transactions you want to make are not better than buying ETH, it's a waste of time and energy. Just buy ETH directly. So, one benchmark can be that the protocol you plan to buy should be able to perform better than ETH (at least in the short term) based on the risk/return of ETH.

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