“If you give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime.”
How to do your own research and find a 50x before the next bull run.
My ultimate DYOR framework.
Inspiration for this thread has come from one of my favourite CT accounts @thedefiedge. He outlines how important it is to follow systems and processes to be a successful investor.
During this bear market, I have been focused on honing my research skills and wanted to share the framework I have developed. Here is the criteria we will look at
Revenue
Treasury
Tokenomics
Locked up funds
Use case
Roadmap
Team/ funding
I used this framework to research the top Layer 2 scaling solutions in August. Since then, I have also decided to add weightings to each category and provide a weighted average score. Giving you flexibility to weight certain criteria more heavily than others.
Let’s go through step by step.
Step 1 – Assign weightings to each criterion. Higher weighting = more important. Each person may want to assign different weightings depending on their own personal experience. E.g. after FTX collapse- you might weight "Team" as more important.
Step 2- Rank your project against each criterion out of 10 (Raw score). 1 being very poor and 10 being excellent in that category.
Step 3- Calculate your weighted average to give your project a score out of 10.
Here's a link to a simple google sheet I created to calculated the standard and weighted average scores. Feel free to use this to create your own research template and document your findings.
https://docs.google.com/spreadsheets/d/1VulhgrDWheF9O7_WOxh66REEVHO8mc4Gyu4gpWYHSa8/edit?usp=sharing
I’m going to step you through each category and outline some of the free resources I find useful to gather data and information. This will assist you with informing your decision for Step 2- which I find is always the hardest part of the process.
Revenue
Is the protocol generating revenue? This is like analysing companies on the stock market- you want strong growth and increasing revenue that delivers value back to the shareholders. Good businesses all have strong revenue streams.
Crypto Projects can generate revenue in many ways -Transaction fees -Trading fees -Liquidation fees -Staking fees -GameFi mechanics A great way to find data relating to revenue and protocol fees is @tokenterminal or @DefiLlama .
Treasury
What is in the protocol’s treasury? How much runway has the project got before they burn through their reserves. Projects need to pay for devs, marketing, partnerships, listings etc.
Bigger is better here and diversity of assets in the treasury is also key. You don't want a treasury that is too concentrated with the projects own token. Once again, tokenterminal is my favourite tool here.
Tokenomics
Ask yourself these key questions -Is the token supply capped? -How many tokens have been issued? -Are there any buybacks/ burn mechanisms? There are heaps of good CT resources on tokenomics. I recommend defiedge as a great starting point.
Best resources to find tokenomics data are
Project whitepapers
Locked up funds
This category is closely linked to tokenomics. Sometimes projects will offer incentives for people to lock up their token and receive higher rewards (Staking fees etc). This reduces buying pressure on the token and increases long-term sustainability.
On the other hand, it’s important to consider vesting schedules and token unlocks to see if there will be large amounts of sell pressure in the future. As you can see in the image, there is a large amount of tokens being unlocked in 2023 for dYdX.
Use Case
What is the project/ tokens use case and utility? Why does it exist and how does it provide value? What problems does it solve? If something is useful, more and more people will use it, leading to greater adoption and network effects.
My favourite place to look at this is @DefiLlama dashboards where you can get all the TVL and DeFi stats you could ever need. Useful to also look at daily transactions and unique wallets, @Dynamo_Patrick has a great tutorial below.
Roadmap
You have found an awesome project, but do they have a clear and strategic direction for the future? Good projects will execute and hit key dates/ milestones and update their roadmap with new initiatives. @MessariCrypto and/ or whitepaper are good resources here.
Team/ Funding
Who is the team made up of?
Are they doxxed
Experience in Web3
Active on socials
Code being published on github
NO CULT LEADERS
Who has invested in the project in the early stages? If the project is backed by prominent investors/ VCs then it increases its chance of success. Although as we have seen lately with FTX, this is not always the case as institutional money can get it wrong.
I want to stress that this is only a framework- feel free to take this and change weightings or even add/ remove categories that you find important. I wanted to share this as a tool to help you on your journey through the cryptoverse.
Now that I have set the foundations, I plan on using this framework to assess projects that I have on my watchlist and determine whether they make it onto my buy list. There are likely to be some great opportunities to accumulate top projects during this downturn.
Over the next few months, I plan to publish these as part of my project deep dive series on both twitter and substack. Think of it as my Christmas present to you all!!
Going through again this after a while. Loving your deep dive series. Fantastic stuff!