Article by Mitchell Roach
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Let’s talk about how to evaluate different tokens.
Cryptocurrency based peer-to-peer networks are complex organizational structures that can offer real value and high returns based on fundamentals, but the market is currently showing no concern for the underlying fundamentals.
If you have a decent meme, you can potentially have a cryptocurrency worth $1B+ in total market value. Even if no one is using the network and there has been no code changes in the past year. You need to stay extremely sceptical to what others say, when dealing with cryptocurrencies, due to it still being such a new and emerging asset class.
We will give you the tools and skills needed to figure out what matters and help you find the right tokens. There are fundamentally 8 factors to evaluating a token, to find out what actually makes a crypto company a good business.
Let’s dive into it.
The team behind the project
The first and most important business factor is the quality of the team behind the project. Whilst looking at the team what you want to see is a diverse mix of business and technical people, as crypto is the application of technology to business. What you also want to see is a good track record of somebody in the company, within the cryptocurrency community. A highly technical individual who understands the blockchain, and the team should be exceptional technically, inclusive, transparent, objective and capable of fostering a vibrant global community. There is currently a lot of mistakes being made when assessing project teams, especially around evaluating visions and technical skills. For example, there is a lot of investor excitement around forks of Ethereum and Bitcoin.
The founding teams behind forked blockchains often lack the vision and technical skills of the founding teams behind the core blockchains, and as a result, are typically less attractive opportunities on a risk-adjusted basis.
Product use case
The second most important factor is product use case, does the virtual token have a strong use case to grant adoption. Without adoption a token is simply just a collection of 1’s and 0s on the web. Ask yourself the simple question, would you use this token in your daily life? Or can you see someone else using it. The main question to consider about the product is whether or not the product solves or will solve an important problem for a segment of people.
Also, the technical specification that describes the product needs to be thorough, demonstrating mastery of the subject matter. You must ask yourself two questions. Does that segment have the potential to grow? And, are there people out there who want and need this product right now?
Right now, we are heavily focused on products that solve problems for the existing crypto community rather than products that solve problems beyond the crypto community. You want to find projects that have the potential for wide-scale of adoption outside of the crypto space.
The third factor is traction, how effective and efficient are the team delivering on their vision. In the best case the team already would have a minimum viable product, at least some technology that they have put together. The company behind the cryptocurrency ahould have a roadmap that they follow stricly, which can usually be found on their website.
In addition, you can see if the team has previously built open source projects, for example a site such as Github that can host open sourced software.
The fourth factor is competition, did the team pick something new or are they entering an already crowded market? In the crypto economy, there is a huge variety of opportunities for companies to build completely new ideas. You may find crypto companies creating alternatives for existing companies in the traditional economy.
However, you want to find an industry that the team is able to build a strong defensible position. Can the team be the best in their space? Is there some technology underlying the token that gives the token a long-term competitive advantage?
The Fifth factor is a clear distribution model, meaning a clear business model with a way to deliver its products and services to new clients, not just vague hype of rumours on the direction.
The sixth factor is one of the most important, the legal status of the company. This will help you understand if the token or project is a fraud or scam and built completely out of thin air.
Is the token a utility token or a security token?
The seventh factor is other investors, who are invested in this company. Is the company only an Initial coin offering or has the team already been backed by a venture capital firm prior to the Initial Coin offering?
The last factor is the size of the market cap, ideally, you want to see a $1 billion market. Enabling the team to try a variety of different things and products, whilst still maintaining a profit. These are just a simple framework to evaluate the fundamentals of token-based projects, we’re not trying to create complex formulas that define what the exact value of something should be.
Value is relative; we think that cryptocurrencies will continue to grow in value over the long-term and we also think there are tremendous misallocations right now between projects with in-the-moment value and projects with long-term fundamental value. By focusing on fundamentals, we think it’s possible to benefit in the long-run.
All of these factors can also be applied to traditional markets and companies.