98% of startups fail because they are unable to raise funds. Due diligence is paramount to prevent money from going down the drain. More than 21,000 crypto projects are in existence as of now. There are tools that help VCs and institutional investors assess the potential of a crypto project.
98% of startups fail because they are unable to raise funds. Funding is the lifeline of a crypto startup or any startup for that matter. But once a crypto startup raises funds, the risk of failure is shared by both investors and founders. Due diligence is paramount to prevent money from going down the drain.
Events like the and Squid Game rug pull highlight the extreme risk in the crypto market. Investors (both VCs and retail) have lost millions of dollars due to such scams. While it is comparatively easy to identify scam crypto projects, the real challenge is to spot genuine projects with underlying factors that eventually lead to failure. Here are the factors that lead to a crypto startup’s failure:
Inability to raise funds
Poor business model
Cash crunch
Regulation issues
Legal challenges
Best Tools To Evaluate A Crypto Project For Investment
More than 21,000 crypto projects are in existence as of now. Evaluating each one of them is a monumental challenge. It is practically impossible to evaluate even a few hundred of them. Thankfully, there are tools that help VCs and institutional investors assess the potential of a crypto project before investing.
Token Sniffer
Token Sniffer helps you differentiate genuine crypto projects from scams. You can search for various tokens on both Ethereum and Binance Smart Chain on it. The tool provides real-time metrics and scoring for every token to evaluate risk. You can search any Ethereum or BSC token by its name or contract address to ascertain if a crypto project is a scam.
DeFiLlama
DeFiLlama is a TVL (total value locked) aggregator that tracks more than 800 DeFi protocols from over 80 different blockchains. TVL is the most significant DeFi indicator that helps you denote the popularity of a crypto project by calculating the number of active users. A growing user base indicates that a crypto project has strong real-world utility. Through DeFiLlama, you can compare the TVL of Layer 1 blockchains, Decentralized apps, and NFT projects. You can simply enter the token’s name on DeFiLlama to measure its TVL.
Token Terminal
Token Terminal aggregates financial data from the leading blockchain and DeFi applications. The terminal presents the financial metrics of a crypto project in an easy-to-understand way, giving you an insight into the performance of a cryptocurrency. Analyzing a cryptocurrency’s performance is critical before making an investment-related decision. Here are the factors that Token Terminal evaluates:
Total Revenue
Protocol Revenue
Price to Sales Ratio
Price to Earnings Ratio
Total Value Locked (TVL)
LunarCrush
LunarCrush is a social intelligence platform that analyzes multiple social media platforms to monitor the sentiment of investors. LunarCrush analyzes millions of social media conversations related to crypto to let you know what people are talking about. Community engagement is vital to the success of any crypto project and LunarCrush helps investors understand the magnitude of community management related to the crypto project they are analyzing.
Cointree News
The Crypto industry operates 24/7. It is practically impossible for investors to remain glued to their screens around the clock to stay ahead of the trend. Cointree delivers the most important news in the crypto industry directly to your inbox. In a highly volatile industry like crypto, staying up to date with the latest news is critical to making profitable investments. With the most important news directly in your inbox, you can take timely investment-related decisions.
Conclusion
The crypto industry is a constantly evolving industry and the risk increases with the rise in the number of cryptocurrencies. While it may look like a lucrative investment opportunity, it is extremely important to separate fundamentally strong tokens from scam coins. As an investor, you must assess vital metrics like TVL, community engagement, business model, and tokenomics before putting your money in a token.
