Vadym Synegin from the blockchain company WeWay explains what you need to be aware of before investing in crypto projects.
Demand for crypto projects skyrocketed in early 2021, and apart from the current crypto bear market, there is no sign that this trend is declining. The largest crypto exchanges, such as Binance and FTX, are always developing new products to attract new users and investors to the crypto and blockchain area.
The DeFi ecosystem offers numerous products ranging from NFT projects, DeFi protocols, GameFi, Metaverses and more.
Investors lack guidelines and the right information when investing in crypto projects, and this lack of knowledge increases their risk. With so many options and information, even experienced crypto traders can find it difficult to make the right decision. Another problem is that the crypto space is plagued by malicious scammers targeting newcomers.
Red flags: Investment in crypto projects
In this section, we look at some points that will help you identify profitable crypto projects and scams. Investors need to carefully choose projects that they want to invest in as there are many risks
The DeFi ecosystem is hardly regulated. Anyone can start a crypto project by creating a token on a decentralized exchange (DEX) like Uniswap and selling it to the community. Although the project has no real value, ie. it does not offer anything unique in this area, the token can act as a speculative asset, making this a risky investment and a pure pump-and-dump scheme.
In addition, unlike the stock market, for example, there are not many legal experts in the crypto industry because the market is still quite young. Therefore, it is difficult for investors to find qualified assistance in choosing an investment project.
Investing in crypto projects is not much different from other investments. You need to have a certain level of financial knowledge and do your own research to determine if the investment can be worthwhile. There are a few points that should definitely be considered.
Confirm instead of trust: How to tell if a crypto project is credible or a scam
Investors need to do their own research to determine if projects really offer valuable products or services to the target audience. There are several stories in the crypto space about investors who have lost huge amounts of money (or even their retirement savings) due to questionable crypto projects or tokens.
5 red flags to keep an eye on:
Is the team serious?
Inform yourself thoroughly about the developers and founders. Do the founders of Project X have a solid and established reputation in the industry? Do they use pseudonyms? Have they already worked on successful projects or are they supported by respected companies in the industry? If there is an experienced strategist involved in the project, someone who wants to make the project a success, it is an added benefit. When the team and project managers are hiding behind a mask, it is better to turn to other projects.
Carefully check the project white paper. Is the White Paper incomprehensible, difficult to read and generally not meaningful? Does the project look like a marketing game? Or does it really offer a useful product / service to the community? The importance of this document is often underestimated.
Low liquidity. If a crypto project enables effort or has a similar mechanism to provide liquidity, then one should check Total Value Locked (TVL). This metric indicates how much money is tied up / locked in the project. The higher the number, the more people trust the project.
The legal framework for crypto projects is no less important. Many public institutions are currently introducing measures to regulate cryptocurrencies. Therefore, projects dealing with this are also regulated. This is intended to drive illegal activities and money laundering out of the market. Nevertheless, the investor must also be aware of the legal side of the project. This helps to protect investors from further problems with the authorities and not lose money.
Exaggerated dividends: Higher returns mean higher risk. A key question for investors to ask is: where does the money come from to pay for the return?
Red flags: Is it worth investing in crypto projects?
The above points are some of the most important factors to consider before investing in any crypto project. Investing in the crypto ecosystem is always risky, but space also offers enormous opportunities. You just have to know how and where to spot them.
The demand for crypto projects is currently quite high. Due to the rapid development of the industry, there are many crypto projects, but only a few investment offers. The growing demand is also favored by the practical uses of cryptocurrencies, which allow investors to monitor the development of a project and its repayment.
All of these factors show that the world will see a rush of investment in crypto projects in the coming years. This creates a wonderful symbiosis when capital develops the industry and the industry adds more capital to its financiers.
About the author
Vadym Synegin is the Vice President of Investor Relations at WeWay. The company is developing a holistic blockchain ecosystem that offers influencers and their audiences innovative solutions to maximize their creative potential.
All information on our website has been examined to the best of our knowledge and belief. The journalistic contributions are for general information purposes only. Any action taken by the reader based on the information on our website is entirely at your own risk.