Some tokens may be decreased to $0.01 in value. Others may break new records in the future cycle. How do you tell them apart? Here’s a method for identifying possible bear market winners and losers:
Use this framework to assess if your tokens should be kept or discarded.
1. Do They Make Money?
- Protocols are for-profit businesses.
- Most employ inflationary tokens to incentivize and stimulate growth.
- Demand for inflationary tokens falls during a market slump.
- After the excitement has worn off, only the essentials remain.
Here are some examples of how protocols generate fees:
- Interest charges
- Bridging charges
- Swapping charges
- Liquidation charges
- GameFi mechanics
“How does this token produce money?”
Revenue data can be found at @tokenterminal and @CryptoFeesInfo.
Value Evaluation
The P/E ratio is one of the TradFi metrics (Price to Earnings Ratio).
The lower the number, the greater the “value.” Because most protocols are in the “start-up” phase, it is not the most accurate value in crypto. It is still a useful tool to have.
2. What exactly is in the Protocol’s Treasury?
A protocol costs money to run: software, salaries, development, marketing, and other expenses.
- How much money do they have in their treasury?
- What are their outgoings?
- How long is their runway?
A company’s oxygen is cash! It’s hazardous if the treasury is entirely made up of the local token.
What happens if the token fails?
Diversified treasuries are good, as is some form of treasury management approach.
3. Reserved Funds
Sell pressure is created in bear markets.
Some systems, such as Curve and LQDR, began rewarding users to lock away their tokens for years via DeFi 2.0.
Locked funds reduce selling pressure, demonstrating user confidence in the protocol’s long-term viability.
4. Utility and Application
When we’re in a bull market, it’s easy to rationalize the use case of any coin.
Now is the moment to inquire as to why this token exists.
What distinguishes it from its competitors?
What issue does it address?
5. Their Strategy
The Roadmap is a long-term strategic plan.
- Monitor developer activity on GITHUB.
- Is the team communicating effectively?
- Are they meeting their objectives?
When a protocol stops updating its roadmap, not a good sign.
6. Copycats of Successful projects
Some categories produce a winner. The system that takes everything.
You want to put your money in procedures that have the potential to become market leaders. How will they stay at the top once they’ve achieved success?
(Compared to Web 2, everything in Web 3 is open source.)
Search for Moats
Moats are competitive advantages that are difficult to imitate by competitors.
Sushiswap can be forked by anyone to make their own DEX. So, if a project is going to become the top pick, what will keep them there? Moats are more difficult to construct in Web 3.0 because everything is open source.
Some cryptocurrency moats:
- Liquidity
- Community
- Brand worth
- Partnerships
- Costs of switching
- The network effects
- Is this protocol outperforming everyone else?
7. The Funding and the Team
Bear markets are mentally taxing.
In 2018, I witnessed numerous teams leave their projects. It’s tempting for an anonymous crew to vanish with their millions,
Some advantages:
- Is the team doxed?
- Are there Notable investors. It is uncommon for projects financed by notable VCs to be abandoned.
- Communication that is active. Remember, none of this is guaranteed.
Everything in cryptocurrency is a probability bet, and you must calculate the odds. Everything is not what it seems in fact 90% of cryptocurrency projects will fail…..
