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How to Do Your Own Research (DYOR)
If you’ve been in the crypto world for even a little bit, you’ve probably heard the phrase “do your own research,” or simply “DYOR.” These common phrases reflect the risks involved in crypto trading and investing. Sometimes, this may be added to avoid legal consequences or blame in the event something goes wrong, similar to how people often write “This is not financial advice.”
With the high volatility and potential risks involved in the crypto market, investors need to make informed decisions about what to invest in, which projects to join, and how to keep themselves and their assets safe. Here, we give you some pointers about how to conduct better research in the crypto space. Also, be sure to check out our 9 web3 safety tips for more on this topic.
TL;DR
- Doing your own research is important because the cryptocurrency market is highly speculative and volatile, and there are many risks and uncertainties involved in cryptocurrency investing, and investing in general.
- Doing your own research involves looking at a variety of factors, including the team behind a project, its technology and use cases, its potential competition, and its overall market potential. It also involves examining the project's whitepaper, website, social media handles, and other materials to get a sense of its goals and plans.
- Doing your own research is a continuous process, and it's important to stay up-to-date on a project's developments and the broader crypto market.
What is DYOR?
DYOR stands for "Do Your Own Research." It is often used in the context of cryptocurrency investing, where it refers to the practice of conducting independent research and making informed decisions about which cryptocurrencies to invest in.
By conducting your own research, you can gain a deeper understanding of the technology, development team, market capitalization, and adoption of a cryptocurrency, which can help you make better decisions about whether to invest. This can potentially lead to better investment returns and protect you from scams and “rugpulls”.
One of the most common consequences of not doing your own research is falling victim to scams. The cryptocurrency market is, unfortunately, full of fraudulent projects that promise high returns and other benefits, but are ultimately designed to steal investors' money. Without proper research, individuals may be more likely to be a victim, which can result in significant financial losses.
It is extremely important to approach any investment with caution and do your own research before making any decisions. Remember: if something sounds too good to be true, it probably is. Be especially wary of projects offering outsized returns, get rich quick schemes, or other fantastical prospects for your money.
It is also important to note that frauds, scams, and financial crimes are often sophisticated. Even experienced, talented investors who do plenty of research and due diligence can fall victim to them. This is why you should consider diversifying your assets and never invest more than you can afford to lose.
Planning Your Research
When doing your own research there are a few key things to look out for:
- The reputation of the project
One of the most important things to consider when DYOR in crypto is the reputation of the cryptocurrency in question. This might mean looking at factors like the track record of the development team, the overall market sentiment towards the coin, and any potential red flags or warning signs. (more on that later). What is the sentiment on social media? What are people saying about the project on forums or writing in articles? What has the team been involved in before? Are they anonymous?
- The technology behind the cryptocurrency:
Another important factor is the technology behind the coin. This might include evaluating the underlying blockchain, the security of the network, and the potential scalability of the coin. Be sure to evaluate your own true knowledge level during this step. How well do you understand what the project does? Are they using buzzwords or jargon to oversell the underlying technology?
- The adoption and use cases of the cryptocurrency:
In addition to the technology behind the coin, it's also important to consider the adoption and use cases of the cryptocurrency. This might mean looking at factors like the size and activity of the coin's community, the number of merchants and businesses that accept the coin, and the potential real-world applications of the technology.
Red Flags
When evaluating a cryptocurrency project, there are several major warning signs to look out for:
- Lack of transparency:
Lack of transparency from the team behind the project is a major red flag. How much information is available about the project’s team and history? Are the founders well-known? Are they anonymous? Do they connect with the community on social media or in a Discord? Have any well-regarded news outlets covered this project?
Also, look closely at the project’s website. Read the whitepaper carefully, and look for a detailed roadmap. In addition to the future, look at the past of the roadmap. Is this project achieving its goals and following the course it sets out for itself?
- Guaranteed or unrealistic returns:
One of the most damaging red flags is the promise or promotion of guaranteed returns on investment. In the world of cryptocurrency, as with any investment, there are no guarantees. If a project is promising unrealistic returns, it's worth taking a closer look before making any decisions.
Most recently, the United States Securities and Commission charged the creators of CoinDeal for a $45 million fraud, in which they lied about the imminent sale of the company for trillions of dollars. CoinDeal allegedly “falsely claimed access to valuable blockchain technology and that the imminent sale of the technology would generate investment returns of more than 500,000 times for investors.” These unrealistic figures should have tipped off investors to approach CoinDeal with skepticism.
- Excessive or suspicious buy-in
If a project requires you to invest overly large sums of money in order to become involved, it may be suspicious. This could be a sign that the project is simply trying to gather as much money as possible as quickly as possible. Certain cryptocurrencies can be expensive (one Bitcoin costs $20,000), but for highly liquid currencies, fractional trading allows you to purchase shares of a token for an amount that is right for you. Never invest more than you can afford to lose!
Be especially cautious if a project is encouraging you to increase your investment or contacting you to invest again. It is generally safest to invest through a well-known, trusted exchange. If someone is telling you to send money directly to a wallet address, bank account, or is asking for sensitive information like your private keys, this is an extreme red flag!
An example of this is the case of IcomTech and Forcount. The founders of these projects were arrested for running a Ponzi scheme, in which they fraudulently claimed investor funds would be used to run a crypto mining operation with daily returns. Victims bought in using “cash, checks, wire transfers, and actual cryptocurrency” and saw their supposed profits on an online portal. However, they were never actually able to withdraw any funds.
How to DYOR
- White Paper
One of the first steps in doing your own research investigation is to read the project's white paper. This document should be available on the project's website, usually in the Docs section – if it’s not, that’s cause for concern! A good white paper provides a detailed explanation of the project's technology, business model, and plans for the future. It is essential reading for anyone considering investing in the project.
Be sure to read the white paper critically. Is everything well thought-out and written clearly? Consider the business model carefully. Does it make sense? A cryptocurrency project should have a clear use case and a viable product that solves a real problem, not solely exist to enrich investors. If a project lacks a viable product or it is unclear how the project intends to generate value for its users, it may not be worth investing in.
Look closely at the project’s technology as well. What new, innovative, or proprietary technology does the product have? How well do you understand this technology? What further development is needed to achieve the project’s goals?
The white paper can guide the rest of your research: What additional research do you need to do to understand the white paper better? What questions do you still have after reading?
- Website and Docs
After the white paper, spend some time checking out the project’s website. Even a quick glance can tell you a lot; if the copy, grammar, design, or other features strike you as poor quality, it may be an indicator of other issues lying beneath the surface. Remember: if there is very little information available about a cryptocurrency project, it may be a sign that it is not legitimate.
Read through the rest of the documentation section. In addition to the white paper, the docs tell you the future of the project, how the actual product works, and lots of other important information. Ask yourself the same questions that you did while reading the white paper.
A crucial thing to look for is the project roadmap. A roadmap tells you the ideal future of this project: what it hopes to accomplish and when. Examine it carefully. Is it overly ambitious? Underwhelming? Does it seem unrealistic about the timeframe in which things will happen, or will things be moving too slowly for you as an investor? And don’t just look at the future. Check if the project has met its previous goals in the past, and if it was early or late. This is one of the simplest ways to see if the project is achieving its aims.
Also be sure to inspect the tokenomics and unlock schedules. These are the rules by which tokens will be minted, burned, and distributed. This affects the scarcity of the cryptocurrency token and, in theory, its price. Look into what portion of the token is given to the team, seed investors, and to the public. This can affect the incentives around the project, and how various people are motivated to contribute to the project’s success and longevity. (Be sure to read our detailed article on tokenomics for more information.)
Another way to learn more about a project is to look at its Github repository. This is where the project's developers share the source code for the project, which can provide valuable insight into its technical details.
- Social Media and Community
An essential part of research is to look at the project's community on social media. A good place to start is the project’s official accounts on sites like Twitter. Are they active? Are they popular? What is the general sentiment of other users? It is cause for concern if people are replying to the account with frustration or complaints, particularly if the team is not responding or hiding these replies. Check YouTube and crypto blogs as well to further gauge the sentiment around the project.
Next, join the project’s communities on Discord and Telegram. Any crypto project worth its salt should have a vibrant community on one or both. Gauge the levels of activity and excitement in these groups. An optimistic, eager community is a good sign that other users are enjoying the project and contributing to its success. Community engagement tools like DAO tasks, giveaways, contests, and more are a good sign that the project is cultivating its community and cares about its users. Furthermore, check if the team is responding to questions and comments from the community, since Discord and Telegram is where that usually takes place.
A red flag to look out for is bot and shill activity. While this happens with even blue chip projects, it is cause for concern if this activity seems excessive. If a large portion of a project’s followers and engagement seem to be fake accounts, if the Discord and Telegram are riddled with spam, or if much of the social media conversation revolves around solely shilling the project, these are signs to be cautious.
- Team and Investors
It is absolutely crucial to research the project’s team and investors. After all, these are the people you’re trusting with your money!
A simple Google search, plus checking out their LinkedIn and Twitter profiles can tell you a lot. What else have they worked on? What’s their background? Do they have a track record of success? Do they have any interesting insights or articles that they’ve posted which reveal how they think?
Something to look out for is anonymous team members. While this is highly unconventional in traditional businesses, many prominent crypto projects have anonymous founders who use pseudonyms (as opposed to “doxed” founders, who use their real identities.) It is up to you how this affects your decision-making, though it does complicate your research.
You should also look at the project’s main investors. While venture capitalists and investment firms can (and often do) make mistakes, they typically have more capacity to perform deeper due diligence than the average person, so their investment might be seen as a mark of legitimacy. In addition, these early stage investors often guide and advise the founders. You can often find information about a project's investors on websites like Crunchbase, which provides profiles of many different companies and investors. Many projects often list their investors on their website. In addition to these sources of information, a simple Google search can help you form a more complete picture.
- Trading Data
For the average person, it is likely wiser to think in terms of investments, not trading. That is, you are planning to hold the cryptocurrency for longer time spans and investing based on the project’s product and goals, rather than market moves.
That said, it is valuable to look at the project's trading history and price dynamics. What is the general movement of the token price over time? Is it highly volatile (moving rapidly and in large amounts)? Are there any large spikes or drops in the token price? What caused them?
Be sure to also check the token’s trading volume. Without sufficient volume, it might be difficult to exit your position without a price swing, since there is not sufficient liquidity. More basically, a lack of trading volume suggests the token is poorly known, unpopular, or otherwise worthy of more investigation.
Be sure to assess your own knowledge level before interpreting technical statistics. Even sophisticated investors misread charts or make false conclusions based on trading data all the time. Furthermore, be wary of any cryptocurrency project that makes unrealistic promises, such as guaranteed high returns or guaranteed success. These are common tactics used by scammers to lure in unsuspecting investors.
By following these steps, you can conduct thorough and comprehensive research in the crypto space and make more informed decisions about your investments. It is important to mention that doing your own research is a continuous process. Hence it is important to continue researching and staying up-to-date on a project's developments and the broader crypto market.
About Pontem and Aptos
Aptos is the fastest, most secure, and scalable Layer 1 blockchain that currently outperforms contemporary layer ones such as Ethereum, Solana, and Polkadot.
Speaking of research, Aptos is transparent about its team, who were former employees at Meta and spearheaded the development of Diem (formerly Libra). It boasts an active community and rapidly growing ecosystem. Aptos is also backed by leading industry players like Binance Labs, Andreessen Horowitz, and many more.
About Pontem
Pontem is a product development studio building for Aptos using the Move programming language. Working closely with the Aptos team, Pontem is building foundational dApps, including the Liquidswap AMM/DEX, Pontem Wallet, the Move Playground browser code editor, and ByteBabel, a Move bytecode translator.
