How to Assess a Crypto Project Before Investing (+tips to keep your assets safe)
How to Assess a DeFi Project Before Investing (+tips to keep your assets safe)
Before investing in any crypto project, the first step is to carry out a thorough assessment of the project (due diligence). Here is a quick rundown of how to assess a crypto project.
How to Assess a Project Before Investing
1. Understand the Project (Token)
The first thing you should do is understand the project. Don’t follow the hype around the project without fully knowing what the project covers.
Ask these questions first:
- What is the purpose of this project?
- Is there anything new the project brings to the table?
- What will the project contribute to the DeFi or crypto landscape?
- Is this project sustainable?
- Is there a long-term plan in place to keep the project
Ideally, you should be able to get most of your answers from the project’s white paper and pitch deck. Don’t be afraid to ask questions on the community forum if you need more information.
2. The Project Development Activity and Smart contract Audit
Another thing to be on the lookout for is the developer activity. If you know a bit about coding, check the code yourself.
Are the developers continually updating the code?
This way, you can assess if the developers are genuine about the project or just around to make money.
Another way to do that is to check if the smart contract has been audited. Smart contract audits are carried out by external developers to ensure that the smart contract code is secure. So, they should be a vital part of any smart contract development. But some developers deploy their code without any audit.
Scam developers will most likely not bother about audits. So, check for the project’s audit; projects with several audits are generally safer than projects without any. However, this doesn’t imply that audits are the only requirement for safety.
3. Tokenomics
How will the tokens be distributed?
The tokenomics is another crucial aspect of your assessment. One of the ways pump and dump scams work is to inflate the token price with a considerable holding and then dump it on the market.
What percentage of the allocation is owned by the founder?
A large founder’s allocation, like 50 – 60%, makes the project prone to pump and dump.
Furthermore, you need to find out how the tokens are distributed. Pre-sale, IEO (Initial Exchange offering), or ICOs (Initial Coin offering)?
You should get this information quickly from the website or the community forum. If it is difficult to get, that itself is a big red flag.
4. Who are the Founders or Founding Team?
Projects with anonymous teams can pose an additional risk if they turn out to be scammers. While not all projects with anonymous teams are scams, it is better if the founders’ real-world identity is known.
Their reputation is at stake, and they can be held accountable easily if anything goes wrong.
5. Investigate the Project’s Community
How active is the community forum?
Most successful and legitimate projects usually have an active community with the users and developers communicating back and forth.
It may be a major red flag if the community is full of inactive or quiet developers. It is better to invest in projects with a thriving community.
Tips to keep your Crypto Assets Safe
1. Protect Your Wallet
Never share your private keys with anyone. Also, keep your keys in a secure place (preferably offline) where they can’t be hacked.
If you’re using a hot wallet, add extra layers of security like 2FAs (2-Factor Authentication) and biometrics lock.
Furthermore, keep an eye on your wallet’s transactions. Confirm that a pop-up is correct before approving. Besides, if you notice suspicious behaviors when updating your wallet app, terminate the update and uninstall it immediately.
2. Be Careful of Social Media Hype and ads
Avoid making your investment decisions based on just social media and hype. Invest in crypto projects you understand. If you can’t figure out how the project or token will work, it is better to pause and research more.
Take your time to research and be sure you’re ready. Most scammers often use high-pressure tactics to get you to invest your money quickly.
3. Only download apps from official platforms
Download your apps from the official website to avoid downloading fake apps and falling for phishing scams.
That also goes for websites; always ensure you’re on the right website and avoid following links from unknown sources.
4. Use a Hardware Wallet (Cold Wallet)
If you plan to store large crypto holdings, it is better to go for cold wallets. Cold wallets are the safest storage option for your bitcoins.
Cold or offline wallets are not connected to the internet, so they are not compromised easily
L O A D I N G
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