To search for and evaluate tokens, I recommend the following scale:
80-100 — token with a high potential.
61-79 — token’s potential is above average.
40-60 — token’s potential is below average.
0-39 — token with a low potential.
Below are the evaluation criteria:
Operating, scalable business: 0 — 40 points.
MVP: 0 — 30 points.
Team: 0 — 10 points.
Token: 0 — 20 points.
Concept: 0 — 20 points.
Popularity rating: 0 — 10 points.
Maximum: 100 points
Operating, scalable business. I mean companies that already have a product, established business processes, profits, an open legal entity, an established team, as well as reputation and a market share. A company conducts ICO to introduce its token into an existing business operation and receive investments for its development. At the moment, there are few of such companies out there, but very soon they will eclipse other proposals. ICO in this respect will become more like an IPO. You should evaluate a business in its entirety, including its needs for financing and its own cryptocurrency.
MVP (minimum viable product): MVP, beta or prototype — any of these names would be fine. To determine the number of points, you can analyze the correspondence between MVP and the project concept. A good MVP should prove some of the solutions outlined in the concept.
Team. You should evaluate the participants’ experience and reputation, as well as their joint experience and relationships with advisors. The analysis should be carried out taking into account the complexity of a concept itself. In other words, the more complex the task, the more experienced the team should be (if a company promises to compete with Alibaba, its leader should be as good as Jack Ma). The team is often considered to be the most critical factor. The human component does play a role; the founders may have different interests and values, which is also influenced by money. Generally speaking, people are just human beings, and a lot of failures happen because of the human component. However, when dealing with people you don’t know, it is impossible to predict whether it will work or not based just on public information. Therefore, no matter how high a team is, the maximum score for this criterion is 10 points. However, if the score is equal or close to zero, you should entirely refrain from buying such a coin.
Token. Blockchain technology led to the creation of a transparent and flexible asset which we should carefully study. During the initial offering of coins, it is impossible to calculate liquidity, but you can predict it using evaluating the following indicators:
Token economic model: Inflationary, or Deflationary. Regarding growth, the deflationary model would undoubtedly be the most interesting one. Bitcoin is a good example. The emission of this coin is strictly limited, while its release to the market occurs in limited portions, which explains the rapid growth of this cryptocurrency. Some developers use additional deflation mechanisms. For example, Wagerr not only limits token emission but also buys out issued tokens using profits received on the platform and then burns them.
Sale procedure. In most cases, those companies are preferable that release coins to the market in small portions throughout the entire product development process: 1 year or longer (a scheme similar to EOS does not apply to these). First, it allows the team to prove the product’s benefits and make investors happy with the progress regarding the roadmap. Also, it is much easier to maintain the required trading volume at the token exchange. You should also pay attention to bonuses. If they are too big, it can negatively affect the investment. It is even better when there are no bonuses at all, which means that fewer traders will participate in the ICO.
Token package. In other words, how a token will be applied in the ecosystem. The more it is needed, the higher the demand will be. If the package could be combined with the deflationary model, we can say that we deal with a reasonable proposal (regarding the token economics).
What percentage of the tokens the does issuer keep for itself? In my opinion, 20-40% is a good indicator. In such cases, the founders do have an incentive to develop and maintain high liquidity of their asset. There are examples of this; Ethereum and Qtum.
Conclusion: a good asset is one that no one doesn't want to sell. Your interests must coincide with those of other crowdsale participants. In other words, they should also be interested in the long-term possession of the chosen token. I would not recommend anyone to participate in an ICO where traders comprise the most significant part of all the participants. Such traders would sell the token after it is introduced to the token exchange and literally «drop» the price.
- The concept. All the information about how the project will develop after receiving investment should be checked, and mutually exclusive statements should be searched for. Business may just not take off if such things are present. The concept is a skeleton on which all the company’s elements are superimposed. If the frame is not reliable and flexible enough or if it contains some errors, it will have a detrimental effect on the company’s further development. In this regard, the concept is similar to the constitution of a state.
The following elements should be analyzed:
Roadmap
White Paper
Development strategy
Demand
Competition
Advantages over competitors
Market
Marketing strategy
The next question should be answered: will all these things be relevant by the time the product is released?
- Popularity rating. It is based on activity on social media, messengers, forums and mass media. Some projects have low activity during the development and preparation for the ICO; therefore, you should make this evaluation shortly before your participation in the distribution. If the activity level is low, it means that even an asset that is good regarding all the other criteria may not be liquid.
How to interpret data received?
Firstly, under no circumstances should you treat this or any other system as a template. For example, if a project has the highest score based on all the indicators, but the token’s economics scored 0, it doesn’t mean that it has 80 points and its growth potential is high. Instead, it says that it has severe problems. For me, this 0 is like minus 100, so I will just ignore such a token. You should treat other similar mutual exclusions in the same manner.
Also, there are some other essential evaluation criteria, such as auditing the token distribution contract code (another code audit would not hurt either). Analyzing someone else’s code and looking for bugs in it is a non-trivial task even for those who have the necessary knowledge. Therefore, right founders must order an audit. If not, you should always keep in mind that you risk losing everything because of an accidental or intentional error contained in a smart contract. Such a risk exists even after an audit but to a lesser extent.
Conclusion
The proposed evaluation system will evolve and adapt to rapidly changing trends in the crypto industry. Indicators obtained as a result of the analysis will help assess potential risks and better understand a project’s economics. To invest or not? It’s up to you.
