As the crypto industry continues to evolve, so too do the methods for valuing a crypto project and its currency. In the early days of Bitcoin and Ethereum, projects were valued primarily based on the team, the idea, and the project’s potential.
However, as the industry has matured, we now have a better understanding of how to value crypto projects and currencies.
In this blog post, we will discuss some of the critical factors to look at when valuing a crypto project and its currency.
Traditional companies are typically valued based on a number of factors, including but not limited to earnings, revenue growth, profit margins, asset values, and market share.
However, these valuation methods cannot be directly applied to crypto projects because they do not yet have traditional business models. Instead, we must look at other factors to arrive at a valuation for a crypto project.
The team
One of the most important factors to consider when valuing a crypto project is the team behind it. The team should be composed of experienced professionals with a proven track record in their respective fields.
Furthermore, it is important to examine whether the team has any previous experience in blockchain or cryptocurrency. This will give you a good indication of their understanding of the space and ability to execute their vision.
The (working) product
This is the best indicator of the team’s ability to execute its vision. A working product shows that the team is making progress and is capable of delivering on its promises. It also gives you a chance to see the project in action and get a feel for how it works. Of course, there’s no guarantee that a working product will lead to success – but it’s certainly a better indicator than merely looking at a white paper or roadmap.
The potential of the product
AKA roadmap. Making valuations based on future predictions can be tricky. There are a lot of variables to consider, and it’s often difficult to predict how the market will react to a new product or development.
Important is to have a good understanding of what the project can be. A good example is Aave and how it rebranded from ETHLend. In 2017/2018, ETHLend was a very basic product but now in 2022 Aave has become one of the top leading De-Fi platforms.
Community and hype
WEB3 is all about community and hype. A project can have a great product, but without an active community, it won’t see much traction. A project that has a strong community will be more likely to survive the ups and downs of the market, and a project that generates a lot of hype will be more likely to attract new investors.
Aside from evaluating the project and team itself, it’s important to be able to understand the value of the token. Many projects have great products, but the token itself is useless. Use the following metrics to determine its value.
Tokenomics
One of the most important factors to value a token is to look at its Tokenomics. In the whitepaper, you can find how and why a token is used within a product. Before investing in a project, it’s vital to understand the tokenomics to know if there will be a strong demand for the token. It also helps to determine the success or failure of a project.
For example, many experts called out LUNA and UST early. Based on its tokenomics, it was claimed that Luna would always fail as it would inevitably end up in a death spiral with UST. This turned out to be true.
Market Cap, Circulating Supply, and Max Supply
Market cap is simply the price of the token multiplied by the circulating supply. This gives you an idea of how much the market values the token. Circulating supply, on the other hand, is the number of tokens that are currently in circulation.
The max supply is the total amount of tokens that will come into circulation. It is important to evaluate the ratios of market cap vs circulating supply vs max supply.
Trading volume
This is a measure of how much the token is being bought and sold on exchanges, and it can give you a good idea of how popular the token is. A high trading volume indicates that there is a lot of interest in the token and that it is being actively traded. This can be a good indicator of the token’s future prospects.
Comparison to competitors
Another way to evaluate value is to compare it to its competitors. What does this token or project offer that others don’t? If it’s priced lower than its competitors, is there a reason for that? Is the team behind the project strong and experienced? If a project is unproven, does it have the potential to disrupt its industry?
Using all of these factors and metrics helps you to better understand the investment opportunities in WEB3.
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