The cryptoverse never sleeps. As innovation becomes more and more a part of everyday life, and new projects seem to appear on a daily basis, the thrill of the new also has its risks. Photo If you are trying to figure out whether you should invest in the new batch of crypto tokens, knowing how to do so safely can protect you from some of the pitfalls. Whether you’re a new investor in crypto or a seasoned aficionado, creating and sticking to a framework with which to assess evaluating token launches is critical to instituting an advice-based, fact-based buying/selling strategy.
This guide will help make sense of the most important things to look for when analyzing token launches. In this guide, we’ll look at things such as project transparency, team credibility, market metrics and more to make sure you venture into the world of all things crypto, with confidence and caution.
Why The Size Of A Token Launch Matters
The cryptocurrency market has grown up, although it still has its own risky edgelord streak. Pitfalls such as rug pulls, pump-and-dump schemes and unfound projects are prevalent in the world of token launches. Assessing token launches well not only allows you to spot good projects but also keeps you from getting your money lost in scams, or garbage projects. It all comes down to being proactive and knowledgeable.
Know the Purpose and Use Case of the Token
First, break down why this token even exists. Every successful token out there is serving a purpose, and the purpose behind it should be clear. “If the project isn’t explaining what problem it solves or why it’s better for users, that’s a red flag. Decent projects usually solve a problem on the blockchain or the traditional world in which most people can relate.
For instance, the likes of the Ethereum network’s native token, Ether (ETH), allow developers to build decentralized applications, while coins such as Chainlink (LINK) aim to increase the reliability of smart contracts via the use of oracle networks. A token with a real use case is much more likely to increase in value and see uptake.
Ask yourself:
Is the problem it solves an important one?
Is the token inherent to the platform’s operations, or only a nice-to-have?
Research the Project Team
After all, a promising crypto cannot exist with no respectable team behind it. Perhaps the best way to safely evaluate a token launch is to get to know the people who are behind it. The power of your developers and advisers can be the difference between a successful project and a flop.
Main things to look for are:
Track record: Does the team have any previous experience in blockchain or relevant industry?
Transparency: Can you determine who the members are, or are they hiding behind a veil of secrecy? Then there are great projects like Bitcoin that started anonymous however in today’s world of crypto it is necessary to be more transparent and show the world who you are to gain any type of credibility.
Partnerships and collaborations: Having strong partnerships and collaborators in well-known companies can contribute the success of the project.
For instance, big collaborations frequently serve as a big sign that a project is legit. By collaborating with existing companies, it can show that the project can be trusted and implemented in real life scenarios.
Analyze the White Paper
The whitepaper is the blueprint of a project. It’s an essential document that every prospective investor in a token launch should read. A good white paper explains that the mission and technical specifications go into the token’s development and future project plans.
Pay close attention to:
Problem statement: Is the project’s problem the white paper is trying to solve obvious?
Roadmap: Is there a realistic timetable for milestones, ongoing developments, and targets?
Tokenomics:Does the project detail how tokens will be distributed, capped, or utilized within the ecosystem? The absence of distribution information might point to a failure to play ahead or to something devious.
Watch out for white papers full of buzzwords and vague promises. If a document appears too complicated, or, on the opposite, too simplistic, then they could be trying to confuse you or misrepresent the deal to you.
Assess Market Metrics
When you compare market metrics, it provides a powerful tool to assess a token’s hype, legitimacy and potential growth. Key metrics — trading volume, total supply and market capitalization — are all full of hints to the answer.
Here are some of the essential metrics to consider:
Market cap: This represents the total value of the token out in the market. High market cap typically means that a project is a bit more established and secure, low cap can add more risk but higher possible reward.
Circulating versus total supply: Be sure to find out what percentage of the total supply of the token is currently in circulation. A massive overdistribution all at once could result in a devaluation of the token.
Liquidity and trade-ability: High trading volumes mean the token is easily traded, which makes help you sell it if you want to.
Platforms such as Token Metrics and CoinMarketCap can offer a lot of stats to look at when seeing how a token is performing.
Assessment of the decentralization level
Projects working with a blockchain are, in most cases, there to leverage the powers of decentralisation. However, tokens themselves aren’t all that decentralized. Before you invest, determine how decentralized the token actually is. A single attackers token is full of potential threat – it means all the decisions are concentrated on their end.
For guidance, review whether:
And the project has governance wherein token holders can vote on big decisions.
The main project has a positive approach toward a decentralized community.
For example, tokens such as Ethereum are famous for their decentralized nature as powered by a large network of validators instead of central ruling figures.
Track the Community and Social Engagement
One of the best signals for a promising crypto project is a strong and engaged community. Go to places like Twitter, Discord, Telegram or Reddit to witness discussions about the token. Look for genuine interaction instead of bot behavior that might boost its popularity.
The questions you can ask to evaluate token launches:
Does the project participate in social media, and is this activity transparent?
Does the community sound as excited and supportive, or is it just simply skepticism on this process?
Never doubt the power of an informed community. A lot of successful projects exist because they have a strong and lively userbase.
Regulatory Compliance
The legislative environment for cryptocurrencies is also changing. Developments that are not in line with local laws and standards face closure, causing heavy financial burdens for those who have invested in the schemes.
Here’s what to look for:
Does the project adhere to the legislation of the country where it is registered?
Have they mitigated concerns around securities laws, e.g., have they not engaged in unregistered fundraising?
Have they made the token launch transparent with regards to how the funds are being spent?
Any project that starts in a jurisdiction with strong legal standards is always more trust-inspiring than one in a jurisdiction with little or no oversight.
Verify Security Measures
Crypto projects can lose millions of dollars due to security breaches. Arm yourself by being a skeptic of the following:
Arm yourself by being a skeptic of the following:
Smart contract audits: Has the project received and passed code audits from reputable third party companies.
Bug bounty program: Developers who are required to find possible flaws before creating malicious ones may take their obligation to be secure a little more seriously.
Hacker-proof history: Have prior attacks or security incidents occurred on the platform? If so, did these occur?
A demonstrated track record of being committed to security reduces risks and engenders trust.
Beware of Overhyped Projects
Hype is a blessing and a curse. A giddy community on the other hand could mean potential, but heightened hype is usually a red flag for pump-and-dump scams, where early believers artificially inflate the value of a token before selling off their holdings for a profit.
Look out for:
Promises of unimaginable returns.
Too high valuations at the start of the token life vs the potential or use of the token.
Celebrities endorsements and influencers having no clue about what the project is for.
Take Charge with Care
It’s going to take a lot of time and work to do due diligence on token launches, however, your due diligence is what makes the difference between good and bad investment decisions. Put an emphasis on safety, not the fear of missing out (FOMO). Do your due diligence before working with any exchange, and stick to reliable ones, diversify your investments and invest only what you can afford to lose.
By following this process and asking these questions, you can steer clear of riskier and less promising investment alternatives in the fast and furious crypto space. Keep asking questions, remain in the know and, more importantly, stay safe.
