Identifying solvable problems & practical solutions

It’s easy to feel overwhelmed by the apparently random nature of the crypto space. 

By breaking it into distinct sectors, everything becomes clearer, and the real opportunities start to appear. 

“Understand how this market is built, and you will understand where it’s going” - this is the basis of all of our research at Cryptonary Pro.

Let’s first take a look at crypto’s (logical) progression so far:

Crypto started with Bitcoin, which we call a one-dimensional (1D) blockchain because you can only transact a single asset (BTC) on it. 

1. Bitcoin was crypto’s proof-of-concept. In other words, it showed society that we need decentralised currencies. (Something we discussed in Module 1 & 2).
2. Then, it was time to build on this technology. Enter Ethereum with smart contracts. We refer to this sector as “Base Layers.” Base Layers are great at what they do, but they’ll need to be able to communicate and interact with each other (as we discussed in Module 11).  
3. This is where the “infrastructure” sector comes in, it is aiming to solve crypto’s biggest current problems. 
4. These three sectors (1D blockchains, base layers, and infrastructure) are all leading towards the end product that people will eventually use every day. This is known as the “Application Layer.” To reach that stage, crypto’s current problems need to be solved. 

Successful crypto investing involves identifying solvable problems within the crypto space, as well as the practical solutions to those problems. The projects that best solve crypto’s biggest current problems are those likely to outperform. 

Choose a sector that has room to grow. A mature, well-established sector offers fewer opportunities. It’s like competing with Bitcoin to become the top store-of-value asset. However, note that not all underdeveloped sectors are equal.

How to DYOR (Do your own research)

The acronym ‘DYOR’ (do your own research) is used a lot in the crypto space, but how do you actually do your own research? Admittedly, it’s not simple and learning to DYOR takes a lot of time, practice and commitment. But if you’re ready to learn, this is a good place to start. 

Knowing how to do your own research is so important - it’s never a good idea to just buy something based on what someone on Twitter is saying and simply hope for the best. 

You wouldn’t invest in a restaurant without knowing where it’s located, what kind of food it serves, whether it has been successful in the past, how many clients it has, who runs it etc. It’s the same when it comes to investing in crypto projects. 

How to complete a fundamental analysis of a crypto

Fundamental analysis is especially important for long-term investment. Deep research and analysis offer an understanding of how big a project’s potential to gain value is over the next few months or years. 

Let’s dive in and discuss the most important things to look at during the fundamental analysis of a crypto project. (Note that this is a beginner’s introduction to fundamental analysis.)

General Research

Start by researching the project online (through Google searches etc.) Try typing in the asset’s name and go at least 5 pages deep into Google, open anything interesting. Also, make sure to try different keyword combinations. 

Check for independently written research articles too (written by anyone but the project’s team) for a more rounded overview of the project. 

 Ask yourself:

• Where does this project get its value?
• Does it have the potential to grow over time?
• What exchanges is the crypto on?
• Who is the crypto partnered with? What do the partnerships actually mean?

Wallet holders

Use a blockchain explorer e.g https://etherscan.io/, https://bscscan.com/, https://solscan.io/, https://arbiscan.io/ to check the wallet holders of the token to make sure that no single wallet/individual owns too much of it (to avoid whale manipulation). 

If a few investors, or team members, hold a large amount of the tokens, it adds a high potential risk. They could have excessive swing over governance, or control the price by pumping and dumping to suit them.

Project website

Click on and read through all the links on the project’s website. While having a great website isn’t completely necessary, a terrible website is typically a red flag. Pay attention to the finer details- spelling and grammar mistakes are usually not a good sign either. 

The website should clearly define what the project is, what its goals are and what its value proposition is upfront. If you can’t easily understand what the project is trying to do, or the information is confusing or vague, that’s not usually a good sign. 

Go as deep as you can into the project’s website to try to understand exactly what the project is. Be critical about the project, the team, their promise and whether they’re actually delivering on it. Look for the reasons why it may not be a good investment rather than blindly convincing yourself it is. Think of it like a business and ask yourself whether you would really want to back this business. 

Note the project’s partnerships and backers, and research those too. Partnerships are important for adding value to a project. However, make sure to understand the details of the partnership before making a judgement.

Ask yourself:

• What is the website like?
• Does the website clearly state the project’s purpose?
• Are there any red flags?
• Who is the project partnered with?

Whitepaper

One of the most important things to look at when completing a fundamental analysis of a crypto is its whitepaper. They can usually be found on a project’s website.

A whitepaper is basically the crypto project’s business plan. It is a detailed proposal written by the development team outlining the purpose and design of the project. It will typically include information about the team behind the project, the tools and technology used by the project, tokenomics, consensus mechanism, future goals, partnerships and use cases.

A good whitepaper should have a clear explanation of the project’s goal. Do you understand exactly what the project is trying to do? If it’s not clear, it may be a red flag. Try to also understand the current stage of the project’s development. Consider what this project is doing differently - what will set them apart or make them successful?

Make sure to read through, scrutinise and understand all of the claims and promises made in the whitepaper. Be as critical as possible. This is essential to fully understand the project. 

A whitepaper can offer a lot of information about the project and is where many red flags such as bad tokenomics, unrealistic promises, and an unclear roadmap can first be highlighted. 

When looking at the whitepaper, also pay close attention to the project’s tokenomics and distribution model (for more on Tokenomics, see Module 15). If the tokenomic model isn’t good, you can rule it out as an investment! 

Note that it’s a good idea to try and cross-check the information you find within the whitepaper with outside discussions about the project. Consider what other people are saying about it and whether there are any red flags. Is it too good to be true? If so, it usually is - but verify!

Ask yourself:

• Is the whitepaper well written?
• Does the whitepaper clearly state what the project is trying to do?
• What does the tokenomics and distribution model look like?
• What stage of development is the project at? (Do they have a beta version available?)
• What will set this team/project apart or make them successful?

Team

Research the team and their history. The team is what drives the crypto project and is essential for its success. Finding information about the team behind the crypto can be a good indicator of its long-term success. An experienced founder and sound team of developers is a good sign. 

Check out the team’s Twitter, social media and LinkedIn pages, and YouTube interviews with team members.

Look at the team members’ experience (in general and within the industry). Note whether the team has developed something in the past (proof of work). 

Also, note how much of the crypto the team holds and how much they’ve sold. 

Note that a lot of projects will have anonymous teams and contributors. This is not necessarily a bad thing, but it will make assessing the competency of the team more difficult.

Ask yourself: 

• Who is the team behind the crypto?
• What experience do they have?
• Do they have experience within the industry?
• What other projects have they launched? 
• Have they been involved in any questionable projects or scams?

Roadmap

Good crypto projects will have a clear vision and roadmap. They can typically be found in the crypto’s whitepaper or on their website. Within the roadmap, you can expect to find information about upcoming features or upgrades, new partnerships or projects, events, or plans to improve the network. 

If the crypto has a healthy history of releases or upgrades, that’s usually a good sign as it shows that the project can deliver on what they promise. 

Ask yourself:

• Does the project have a clearly defined roadmap?
• What is their actual development timeline?
• Are the goals realistic?
• Does the crypto have a healthy history of feature releases or updates?
• Have they fulfilled their promises?
• What have they delivered so far? How has this affected adoption?

The problem

Consider whether this project addresses a problem currently faced by crypto. Or whether the project is creating a theoretical problem and offering a solution. Often it’s the latter and hence no traction is caught beyond hype. 

Ask yourself:

• Is this an important problem currently faced by crypto?
• Is the project offering a solution to a real problem?

Sector/competition

In the crypto space, a lot of different projects are trying to do similar things. So it’s important to look at the project’s competitors and how they compare. 

The crypto’s whitepaper should give a good indication of its use case. It’s also useful to identify the projects it’s competing with, as well as the existing infrastructure it aims to replace/improve. Consider whether the market is already oversaturated with solutions, which may decrease the likelihood of adoption. Niche markets are small, but there may be an increased likelihood of adoption. 

What subcategory does the crypto fall into? Payment, NFTs, metaverse/gaming, smart contracts, Layer 2 solutions etc. Each category has active projects, so it’s necessary to check how the crypto is placed in comparison to its competitors. 

Researching a crypto’s competitors can be extremely insightful. A crypto may look appealing by itself, but placing it beside its competitors could reveal it to be weaker.

Ask yourself:

• How many competitors are there?
• How does the crypto compare to its competitors? 
• Is the product unique?
• What long-term prospects are there in the sector?
• What risks are facing this project?
• What differentiates this project?

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News/social media

Sound projects usually have a decent online presence. This helps them to build a solid community and promote their product. Determine the strength of the community by looking at the project’s social media channels. If a crypto doesn’t have a decent online presence, it’s a red flag. 

Read through the project’s Twitter, Discord and Telegram channels. Note how the team interacts with the community and see what others are saying about it. Evidence of a real, thriving community helps to add to an investor’s confidence in a project. 

Also, search LunaCrush and news websites and check to see if the project has suffered from any hacks or attacks in the past. 

Ask yourself:

• How many social media followers does the project have? 
• What is the engagement like?
• What is the general tone of the community?
• Does the team engage with the community? 
• Has the project suffered from any hacks or attacks in the past?

Tokenomics

In Module 15, we looked at some of the tokenomic factors you need to know about, including supply, allocation/distribution, inflation, and utility. This useful checklist will help you to put what you’ve learned into practice. When researching a token, try to answer the following questions. 

Supply

When looking at a crypto’s supply, we must consider how the supply will change over time, as this is a determining factor as to whether the token will hold, increase or decrease in value over time. 

Circulating supply

The circulating supply is the number of tokens that have been issued so far (the number of tokens currently in the market). 

• How many tokens exist right now? (What is the circulating supply?)

Maximum supply

For some tokens, there is no set maximum supply. When we compare the circulating supply with the maximum supply, it tells us how many more are going to be released, which is vital when considering the potential value of a protocol in the future. If the circulating supply is low, but the maximum supply is high, that’s a red flag as it could cause the value of your tokens to be diluted. 

• How many will ever exist in the future? (Is there a maximum supply?)
• How does the maximum supply compare to the circulating supply?
• How will the supply change over time? (Distribution schedule, covered later)
• How will supply changes affect the token price?

The key here is to consider if the value the protocol gains over the time that tokens are released is likely to outweigh the price pressure caused by tokens being released. For example, if you think a project is likely to grow by 10x in the next year, and the circulating supply will 3x over that time period, it would still be considered good value at this time. 

Looking at the other side of this, if you think a project is only likely to grow by 50% in a year, and the circulating supply will increase by 40%, that would be a much worse investment than the example above.

Market cap

The market cap or m’cap is the total dollar value of all coins in circulation. A crypto’s market cap is calculated by multiplying the circulating supply by the token’s price. The market cap of a crypto is far more important than the token’s $ price, as the price doesn’t actually tell you what a project is valued at. It offers an indication of how valuable a crypto is, as well as its growth potential. 

• What is the crypto’s market cap? 
• Is it a relatively small or large market cap in comparison to what it is worth, including growth prospects? 

It’s much easier to get massive returns from small market cap coins, as there is significantly more room to grow. However, a crypto with a smaller market cap is a riskier investment, as it’s much more likely to go to 0 than a crypto with a larger market cap. 

Fully diluted valuation

The fully diluted valuation or FDV is the theoretical market cap of the crypto, if all tokens were in circulation. This is calculated by multiplying the crypto’s current price by the maximum supply of tokens. 

Do your own research and note how the token’s market cap compares to the fully diluted value. If there is a significant difference between a token’s market cap and fully diluted value, it means there is still a large number of tokens waiting to be released into the market, which could be a red flag.

• What would the theoretical market cap be if all tokens were in circulation? 
• Is there a significant difference between the token’s market cap and its fully diluted valuation? (Is there still a large amount of tokens to enter the market?)
•  If there is, is this likely to cause issues? 
• How are the remaining tokens going to be released, and when? See distribution below…

This is vital for obvious reasons, especially when combined with distribution (considering when and how the tokens will be released). If you intend to hold a token long-term, and the fully diluted value will likely be reached over that period, it is better to ignore the market cap and go by the fully diluted value.

CoinGecko and Coinmarketcap are useful websites for checking a crypto’s supply, trading volume, market cap, fully diluted value, price, and where you can buy it). 

Block Explorers e.g. https://etherscan.io/, https://bscscan.com/, https://solscan.io/, https://arbiscan.io/ are useful to see the distribution of tokens, as well as the maximum supply, holders, price and fully diluted value. Find the token address on the project docs or CoinGecko and Coinmarketcap and search it in the relevant block explorer.

Distribution

Do your own research on the distribution of the crypto. It refers to the rate of the release of a token, as well as where and to whom it is distributed, which affects its value and reputation. 

Note if a few investors, or team members, hold a large amount of the tokens, as this adds a high potential risk. They could have excessive influence over governance or manipulate the token’s price by pumping and dumping to suit them. 

A good distribution design is when no individual or group holds a large percentage of tokens. Instead, it should be distributed among many, with a focus on community allocation. The distribution of tokens to the community incentivises users to come to the protocol. 

Note how many tokens are available to both private and public investors. Find out which wallets are holding large amounts of the tokens, and if they could be sold if the price were to rise dramatically. 

Remember that the rate at which tokens are distributed also matters, so consider the Fully Diluted Value or FDV (the crypto’s theoretical market cap if all tokens were in circulation), as well as the Supply and Market Capitalisation in combination with the distribution. 

There’s a big difference between a token whose supply is growing by 5X in 5 months and one that’s growing by 5X over 5 years. 

Tokens may also be locked up for a period of time, during which they cannot be transacted or traded. This refers to the ‘vesting schedule.’ A good vesting schedule helps to increase the confidence of token holders as it means that the market won’t be overwhelmed by a mass release of tokens allocated to the team or private investors. 

• Who gets how many tokens at launch?
• How were tokens distributed (fair launch, pre-mine, ICO, IEO etc)?
• How many tokens are allocated to team members?
• How fair does the distribution seem? 
• Do a few wallets hold most of the tokens? 
• How much of the supply can the community get hold of?
• How and when will new tokens be released?
• When will locked-up tokens be released? (What is the vesting schedule?) Will a lot of locked-up tokens be released at once?
• When are private investors unlocking?

Wallet holders

Platforms like Etherscan (they exist on most blockchains, you just need to find the one that is relevant for the project you are looking into, e.g. Solscan, Arbiscan etc.) allow you to see all wallets that hold the token. Do your own research. 

This means you can find out which wallets are holding large amounts of the token. This is useful as it allows you to see if one wallet holds a large amount of the supply, and can therefore dictate the price, or dump the token. Note, often the largest wallets are the protocols treasury, mining wallet, vesting contract or similar. So be sure to check out the wallets before jumping to conclusions.

Also, note that if it is a governance token, these holders, if their positions are large enough, can have considerable sway over the protocol's governance.

Check the project documents (tokenomics section) and information you can find through Google searches (be wary and cross-check sources). 

Inflationary or deflationary?

A crypto is either inflationary or deflationary. Do your own research on inflation. It can reduce the value of tokens over time, but, if done right, can add huge value by attracting interest and liquidity, turbocharging growth. 

Deflation can increase the value of tokens over time, as there are fewer tokens, each one is worth more This is why deflationary tokens can be so valuable. However, it does also add risk factors, as it is very complex to get right, and if done wrong, could ruin a protocol, we must consider how, why, and when those tokens are being burnt. 

• Is the token inflationary or deflationary?
• What is the inflation rate, and where are the emissions (new tokens) going?
• Is the inflation rate due to reduce over time? This could mean the protocol is effectively bootstrapping liquidity in the early stages.
• Are there plans for it to be deflationary? If so, what are they and how will it work?
• Are there plans to stop emissions at a set point? What will happen after that? Will there be incentives for people to continue using the platform?

Check the project documents, search Google, and use sites like Duna Analytics. 

Utility

Utility is often also referred to as the use-case of the token. When looking at utility, consider the question: Why would you hold this token? The answer may be revenue sharing, staking, governance etc. A token needs to have a good purpose to exist and for people to want to hold it. 

Revenue sharing means token holders earn a percentage of the token’s revenue. If a token has built-in rewards and revenue through staking or other forms, it’s easier to justify investing in it. 

Governance means token holders have a say in decisions and the project’s direction. Governance tokens enable the distribution of power across an entire community. 

Note that “utility tokens” and “token utility” are not the same thing. Token utility is the umbrella term for what a token does, a utility token is one of those use cases. Utility tokens can be good investments as long as they have clearly valuable utility. 

• What is the token’s purpose?  
• What is its utility? What does it do?
• Is it a utility token?
• Is it governance (meaning is it used to decide what happens to the protocol)?
• Is it revenue sharing?
• What gives this token value as an investment?
• Does the token have built-in rewards?

Rug pulls

Another thing to be aware of is rug pulls. A rug pull is a type of crypto scam where developers pretend they are building something, then abandon the project, sell their tokens and run away. 

Often rug pulls may not even be intentionally malicious, just overly eager developers and teams that believe they can do more than they can, resulting in a ‘slow rug’ (when the team communicates less and less, until eventually, they abandon the project.) Note that rug pulls are especially prevalent in NFTs.

A token may be considered “unruggable" if there aren’t a considerable amount of team-held tokens that could be taken out in a rug pull, or if the team renounces ownership of tokens. 

Embarking on learning how to do your own research journey is more than just a practice; it's a mindset shift towards proactive, informed investing. Understanding the nuances of the crypto market, from its basic supply dynamics to the intricacies of tokenomics, is critical. By adopting a structured approach to research you're setting a solid foundation for making decisions that align with your investment goals.