Identifying Successful DeFi Projects and Factors to Look For
We are launching our new platform, www.defigator.xyz this week where we hope to be a one-stop shop for users in the DeFi space to get information on pre and post launch projects while being able to digest the success and sustainability of any individual project. It’s hard for any one individual to keep up with the numerous projects coming on line every day. Below you can see what we use to help evaluate a project as well as general guidelines for anyone in the space. Lastly, come check us out on www.defigator.xyz for more content!
There isn’t any one specific reason for why a project is successful and typically you are unable to succinctly explain why the project has succeeded. Sometimes you just have a gut feeling or an x-factor for why you think a project will be profitable. However, if the project fails to have the proper marketing, leadership, tokenomics or any other single factor it is doomed to fail. Our philosophy here is to outline what we see as the most important components for a successful launch and the long term sustainability of a project. Below you can see what we look at and what goes into the Gator Score when we evaluate a project.
Tokenomics: Ultimately the success (and length) of a project will fall upon the tokenomics. This involves reading through the white paper and carefully examining the functions of the various wallets (treasury, investment funds, burn wallet, price stabilization mechanisms). Post-launch it is important to examine the block chain and see if the project is actually following the protocol that they have outlined.
It is important to examine how realistic it is for the protocol to remain sustainable. What does that mean? Well, many projects offer a large APY or daily interest — what mechanisms do they have in place to be able to control the price of the token crashing. Are they going to be able to manage volatility at launch? What are the buy and sell fees? How long will it take to get your initial investment out and how easy will it be?
Lastly, look in to the fine print — does the return change after a certain period of time? Are you able to withdraw all at once or what hurdles will be in place for exiting the protocol?
Utility: This is what makes the project unique. Any project can continuously increase the supply, but how can you keep those tokens from losing value at the same rate? Does the team have a plan for re-investing the money they receive — and if they do how realistic is the plan? It’s easy to promise grandiose ideas and investors love to hear them — but is it really going to happen? Without utility, even a successful token can be copied and will quickly become obsolete.
Community: What is the social media presence like? The most important channel would be the project’s discord. Here you can get a sense of the community. How large is it? Are the potential investors engaged with the project and how well organized is the discord. Official links should be easy to access and channels should be complete with the info they promise. From the team side it is important the moderator is knowledgeable and quick to respond to activity in the discord.
As for other social media platforms like Twitter it is important to see not only the # of followers but also if they actually engage with the content. If the proportions are large between “followers” and actual engagement then it is likely that the followers were bought. Post-launch decrease in activity often is an indication that the team is not keeping up with marketing and the project may be coming to an end soon.
Audit/ KYC: The importance of both of these is self-explanatory as they are both layers of perceived protection for the investor — but it also can’t go understated. We think it is critical to have (at minimum) an audit of the contract prior to launch. Multiple audits are even more re-assuring. However, if you have pre-launch audit and then change the protocol (even minor changes) it is imperative to get another audit done after these changes are pushed.
For KYC and doxing the team the benefits are two-fold. First it is helpful to know that the team is willing to (somewhat put their names and faces out there). Secondly it gives a view of the experiences and skillsets of the team running the project. Certainly not a rule of thumb — but projects with leaders that had success in other industries typically bodes well for the management of the protocol.
Leadership: Ultimately you are buying in to the team as much as you are buying in to the protocol. It is critical that the team has a clear understanding of the roadmap for the project. This means putting the right people in the right places and enabling them to succeed. No one person is perfect at every aspect that goes in to a defi protocol (finance, marketing, coding, back-end development, graphic design, etc.). However being able to put together a team that works together cohesively will enable long term success. Sometimes true leadership qualities will not be seen until the project faces adversity and then you are able to judge how the team responds. Are they quick and transparent in their response? Do they acknowledge any errors or do they know how to prevent these issue from occurring again. Having answers to these questions will help prolong the life of any project.
