How To ‘DYOR’ | The Ultimate Guide To Your Next Safe Crypto Investment
Investing in crypto can often be quite overwhelming, especially for inexperienced investors. When looking for new opportunities or deciding whether a project is safe to invest in we are often left guessing, not knowing how to properly research the investment. Sure, we are bombarded with messages saying ‘DYOR’ (do your own research) but how do we actually go about it, what tools should we use? Let’s take a deeper dive into what makes an investment safe and how to make sure our research is accurate and thorough.
To get started let’s first identify the two main, broader areas of research. First, we need to focus on the technical aspect of a token such as the contract and financials. For this purpose, we will be using the newly released AI Safety Audit from MarketMove (app.marketmove.ai), an industry-leading auditing tool for scanning tokens. The second part of the research should be focused on social media, the team, and the use case of a given project.
The safety audit tool provides all the important financial details of a token at a glance. The first thing we see are the taxes associated with buy and sell transactions. Fees associated with buying and selling are standard for most tokens on the Binance Smart Chain, however some contract owners set them extremely high, creating effective ‘honeypots’ as a way of scamming traders out of their investment.
When investing in a project it’s important to know how big the top wallets are, even if everything has checked out and you feel confident in an investment it’s crucial to know if there is the risk of a large wallet selling off their holdings and dumping the price. The safety audit will show the percentage of the total supply held by the top 5 and top 15 holders giving investors a clear picture of how the circulating supply is distributed.
The first and most important thing to verify is whether the liquidity is locked. Unlocked liquidity means that the provider can withdraw it at any time and perform a ‘rugpull’, leaving investors with untradeable and therefore worthless tokens.
The last step in the safety audit is to verify the contract itself. If the ownership of the contract is not renounced, the owner can make changes to the contract. Many projects do not renounce contracts since keeping ownership allows for further development as well as making changes to the tokenomics such as editing the taxes. This can however be dangerous since at any moment taxes could be increased to create an effective ‘honeypot’. Make sure you trust the team behind the contract if the ownership is not renounced. The contract audit also has the ability to detect other dangerous functions such as the ability to transfer all of the tokens to the owner. The presence of such functions does not necessarily mean that the owners will use them with malicious intent however extra caution should be exercised.
After thoroughly scanning the financial side of a project it’s time to look at all of the other key components to a safe investment. Ultimately the single most important aspect of a project is the team behind it. Most serious teams are doxxed (have revealed their identity). This allows potential investors to research the people running the project, their previous working experience, and any other projects they may have been previously involved with. Having a doxxed core team that can be found on platforms such as LinkedIn is always a confidence booster. A lot of teams and developers still prefer to remain anonymous and even though said anonymity is not synonymous with a scam it undoubtedly increases the risk associated with an investment.
Telegram and Other Social Media
Most projects these days are built around communities on platforms such as Telegram or Discord. These outlets allow for close interaction between the token owners and their investors, it is highly recommended to join such communities before making the final decision on an investment. What are some of the things you should look out for?
- The size and activity of the community, if a lot of people are interested in a project, it’s more likely to gain traction.
- Are the members real? Some groups’ member counts are inflated by bots and fake accounts. Look at the engagement in relation to the size of the group to determine if the members are actual humans. Telegram groups should also have a captcha mechanism in place to filter out any bots.
- Are the team members actively involved? A good project should have team members and moderators available to address any issues and concerns that may come up. If a group is left unmoderated it could be vulnerable to FUD and misinformation.
Along with having an active community, make sure to check if the team is active on other social media platforms such as Twitter, Facebook, or Youtube. Having a large presence across various outlets is another confidence-instilling factor that shouldn’t be overlooked.
Utility & Roadmap
The last step of our research is to determine if we are happy with the team’s products and long-term growth vision. For this purpose, we need to visit the project’s website, look at the roadmap, and read through the whitepaper. Projects without any utility or long-term vision have succeeded in the past however that’s only a few out of tens of thousands. If you plan to invest long-term, make sure the team fulfills their roadmap and delivers on their promises.
Certainly most if not all crypto investors are guilty of, at least once, impulsively investing in a token that ended up being a scam. Thankfully, with the release of a tool as good as MarketMove’s AI Safety Audit and with a bit of research we are able to drastically reduce the risk associated with investing in such a young and volatile industry. Following all the steps mentioned in this article should not only help protect from scams but also, simultaneously, increase profits from trading.