Here are 5 tips to help you DYOR

If you make your investment decisions purely based on the sentiment on social networks or the opinions of others (shilling), there’s a good chance you’ll lose money in the long term.

You must do your own research (DYOR) to gain knowledge about a project, who’s behind it, what are the tokenomics and where is it likely headed in the future. Here are 5 tips I use to DYOR:

1. Check the current market cap and circulating/total supply

If the market cap is small (under $100m) it’s got good potential for growth, but it can also mean that the price can be easily influenced by whales so it can dump quickly.

If the supply is massive or growing it will likely be bad for the price in the long term, as each new token that enters circulation dilutes the value of the existing tokens.

2. Vet the team behind the project

Check who’s on the team and how many members there are. See what projects they have been involved with in the past and what experience they have. If the team is anonymous it can be a red flag, but not always.

A good project will usually have a list of experienced advisors too.

3. Check strategic investors

If the project is backed by reputable VC’s it can be a good sign, but not always. The token distribution might be messed up and retail investors could end up being dumped on.

You should check the blogs of these VC’s to see if they have made a post regarding this investment and reasons behind it.

You can also look for additional information like comments from backers in the media.

4. Read the technical documents

If you don’t understand what you’re investing in, you’re adding unnecessary risk.

Every reputable project will have a whitepaper/litepaper that explains the technology, what problem they are solving and the tokenomics.

Tokenomics is VERY important in DYOR because a lot of projects borderline scam investors by creating tokens for themselves and their backers that just get dumped on the market. This can also cause legal issues (SEC/Ripple).

Check the allocations and whether team tokens are locked and being released gradually - it’s a good sign that the team expects longevity.

5. Understand tokenomics

Outside of token allocation, you need to understand the use case behind the token. If the use case is poor, the demand for it will be poor.

When dApps are built on Ethereum, using them requires gas fees paid in ETH - that’s a solid use case which drives the demand for ETH.

See if the team has talked about it in detail and think about how much demand there will be to accumulate the token outside of just “price go up”.

BONUS: Check for audits

Every DeFi project should have an audit conducted by a reputable auditor. Otherwise you risk losing your funds.

Read the audit to see if the security has been deemed satisfactory and what the risk/recommendations are.