Investing in Web3 projects early can be rewarding but risky. To make informed decisions, focus on these key areas:
- Team and Advisors: Verify their experience, blockchain expertise, and transparency using platforms like LinkedIn and GitHub.
- Market Fit: Ensure the project solves a real problem and has scalability potential.
- Technical Infrastructure: Check the system’s architecture, code quality, and developer tools.
- Token Economics: Analyze token distribution, utility, and funding history for sustainability.
Quick Overview
| Key Area | What to Check |
|---|---|
| Team & Advisors | Verified experience, active involvement |
| Market Fit | Problem-solution alignment, market demand |
| Technical Infrastructure | Developer tools, code audits, on-chain analytics |
| Token Economics | Balanced allocation, clear use cases, vesting plans |
By focusing on these criteria, you can minimize risks and identify projects with strong growth potential.
Team and Advisor Assessment
Team Background Check
In Web3 projects, the team’s reputation is a major factor in determining investment potential. To evaluate this, it’s important to dig into their work history, technical expertise, and past achievements. Check platforms like LinkedIn, GitHub, and even their participation in industry events.
What to look for:
- Experience in blockchain development
- A history of launching successful projects
- Active involvement in the Web3 space
- Verified identities for all team members
Advisor Impact
Advisors are key to navigating the technical and regulatory challenges in Web3 projects. But don’t just focus on their names – look at their specific expertise and how actively they contribute to the project.
Qualities of effective advisors:
- A proven history in Web3 development or related fields
- Hands-on mentorship in blockchain projects
- Knowledge of regulatory compliance
- Skills in building and engaging communities
The best advisors show their value by:
- Regularly contributing to the project
- Staying transparent and engaging with the community
- Offering their time voluntarily
- Demonstrating past success in Web3 initiatives
To confirm their credibility, use a structured approach that includes professional, technical, community, and legal assessments.
Verification Methods
Use multiple layers of verification to confirm the credentials of both team members and advisors. Platforms and tools like LinkedIn, GitHub, and blockchain-specific resources can help validate their authenticity.
| Verification Layer | Tools/Methods | What to Check |
|---|---|---|
| Professional | LinkedIn, GitHub | Quality of connections, endorsements, project history |
| Technical | Code repositories, audit reports | Frequency of contributions, code quality |
| Community | Discord, Telegram | Level of engagement, responsiveness |
| Legal | Business registrations, compliance records | Regulatory status, legal structure |
When verifying, focus on:
- Consistency across profiles and platforms
- Quality and relevance of professional connections
- Timestamps and patterns of activity
- Public speaking engagements or published work
Warning signs to watch out for:
- Team members who remain anonymous without justification
- Inconsistencies in professional histories
- Little to no verified blockchain experience
- Lack of public interaction or openness about their roles
Market Fit and Growth
Problem-Solution Analysis
To succeed, a Web3 project must address real-world needs using blockchain. Many projects fail because they offer solutions to problems that don’t exist.
Key traits of a strong Web3 project include:
- A clear value proposition that highlights benefits
- An edge over non-blockchain alternatives
- Demonstrable improvements in cost or efficiency
"Most people jump into Web3 with a solution in search of a problem. That’s backward. Instead, start by asking: What problem am I solving? Is this a real problem for many people? Does blockchain solve this better than existing solutions?" – Jaypalsinh Jadeja
When assessing whether a project aligns with a real need, focus on these areas:
| Assessment Area | Key Questions | Success Indicators |
|---|---|---|
| Problem Validation | Is this solving a real user need? | Clear user pain points and demand |
| Solution Viability | Does blockchain add unique value? | 30%+ improvement in costs/efficiency |
| Implementation | Is the solution practical and scalable? | Working MVP and initial user adoption |
Once you confirm the problem-solution alignment, the next step is to measure the market opportunity.
Market Size Assessment
After validating the problem-solution fit, analyzing the market size gives a clearer picture of a project’s potential. The Web3 market is expected to grow from $1.04 billion in 2025 to $6.06 billion by 2030, with a CAGR of 42.3%. As of 2024, North America holds a 35% market share.
Key growth drivers include:
- Rising demand for data privacy
- Advances in technology
- Increased adoption of digital assets
- Integration with AI and IoT
Recent examples highlight market momentum. In September 2023, SunSpear Games collaborated with Immutable. In November 2024, Playnance launched PlayBlock, introducing zero-gas transactions in DeFi and gaming.
Understanding the competitive landscape is the next critical step to position the project effectively.
Competitive Analysis
Once the project’s potential is validated, analyzing the competitive environment helps refine its strategy.
"Competitive strategy – the art of crafting and executing plans to achieve an advantageous position in the market – is integral to any business, and especially relevant for platforms because it determines their ability to achieve network effects and scale." – a16z crypto
Here’s how competition differs between traditional and Web3 markets:
| Factor | Traditional Markets | Web3 Markets |
|---|---|---|
| Market Entry | High barriers | Lower barriers with open development |
| Competition Type | Zero-sum game | Collaborative ecosystem |
| Value Creation | Platform-based | Community-driven |
| Market Share | Market dominance | Protocol adoption and liquidity |
For example, Lido has captured 32% of staked ETH by building trust through community engagement and reliable service.
To evaluate competitive positioning, focus on:
- The protocol’s unique strengths
- Community engagement and participation
- Potential for network effects
- Technical advantages compared to rivals
Technical Review
System Architecture
When assessing a project’s technical foundation, system architecture plays a key role in investment decisions. Pay close attention to how accessible it is for developers and the quality of blockchain integration. Another crucial factor is code quality, which ensures the system’s reliability.
Here are some core architectural elements to evaluate:
| Component | Evaluation Criteria | Success Indicators |
|---|---|---|
| Developer Tools | SDK availability, IDE support | Compatibility with major programming languages |
| Documentation | Technical guides, API references | Up-to-date and comprehensive resources |
| Smart Contracts | Code modularity, security features | Regular audits and clear documentation |
| Blockchain Integration | Network compatibility, scalability | Multi-chain support and efficient transactions |
Developer ergonomics – how straightforward it is for developers to build on the blockchain – is a top priority. Once that’s covered, dive into code quality to confirm the project’s technical soundness.
Code Quality Check
Code quality can make or break a project. This involves reviewing the development process and the end product. Security audits from trusted firms can identify vulnerabilities and ensure the system is secure.
For example, in November 2024, QAwerk and Virtually Human Studio conducted rigorous testing, enabling the smooth launch of a platform for 30,000 waitlisted users.
Key indicators of strong code quality include:
- Repository Activity: Frequent commits and updates.
- Testing Coverage: Comprehensive and well-maintained test suites.
- Documentation Quality: Clear inline comments and detailed technical guides.
- Security Measures: Multiple audits conducted by reputable firms.
Pair these internal evaluations with on-chain analytics to get a real-time picture of the project’s performance.
Blockchain Data Analysis
On-chain analytics tools are essential for gaining insight into a project’s performance and user adoption. Two standout platforms for this purpose are:
- Dune Analytics ($390/month for Pro): Offers SQL-based analysis, community-driven dashboards, and real-time monitoring.
- Nansen ($999/month): Provides Smart Money tracking, token flow analysis, and Smart Alerts.
"Nansen’s Smart Alerts helped us detect early that the UST Curve pools were getting drained. As a result, we saved tens of millions of dollars by being able to exit early."
– Wes Cowan, Valkyrie
When using on-chain data, focus on these metrics:
| Metric | Tool | What to Look For |
|---|---|---|
| Transaction Volume | Block Explorers | Steady growth in daily transactions |
| User Activity | Nansen | Engagement from Smart Money wallets |
| Token Distribution | Dune Analytics | Balanced holder distribution |
| Network Usage | Both Platforms | Increasing adoption and activity |
These tools and metrics help you gauge the project’s health and adoption trends effectively.
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Token Economics
When analyzing a Web3 project, examining its token economics is just as important as understanding its technical foundation. This step helps you assess the project’s financial health and long-term viability. By focusing on token distribution, utility, and funding history, you can better understand its strengths and risks.
Token Distribution
How tokens are distributed gives you a clear picture of a project’s sustainability. For example, public investor allocations have dropped significantly, from 35% in 2018 to just 4.6% in 2023. By analyzing token allocation among different groups, you can spot potential red flags.
Here’s a general guide to balanced token distribution:
| Stakeholder Group | Suggested Allocation | Warning Signs |
|---|---|---|
| Team & Founders | 15–20% | More than 25% could indicate centralization risks |
| Early Investors | 20–25% | Over 30% raises concerns about token sell-offs |
| Advisors | 2–5% | Above 7% might suggest inefficiency |
| Community & Public | 40–50% | Less than 35% may point to limited decentralization |
Most projects (about 85%) use a four-year vesting schedule with a one-year cliff. However, projects where more than 26% of tokens lack a cliff are at higher risk of sell-offs.
Token Use Cases
The role of a token within its ecosystem plays a crucial part in its future value. Tokens need to have a purpose beyond speculation. Here are some common use cases and what they indicate:
| Utility Type | Example | What to Look For |
|---|---|---|
| Governance | Voting on protocol changes | Active participation in DAOs |
| Platform Access | Fee discounts or service access | Increasing transaction volumes |
| Staking Rewards | Incentives for network security | A consistent holder base |
| Economic Incentives | Revenue sharing or rewards | Well-balanced token economics |
For example, Solana (SOL) uses proof-of-history to address Ethereum’s issues with high gas fees and limited throughput.
Investment History
A project’s funding history can shed light on its investor confidence and growth trajectory. For instance, Solana allocated 38.89% of its tokens to community initiatives, showing a clear focus on community involvement. Uniswap (UNI) also stands out with its approach, which included:
- A community airdrop of 400 UNI tokens per eligible user.
- Allocating 60% of tokens to community members.
- Granting governance rights to token holders.
When evaluating investment history, pay attention to these factors:
| Factor | What to Check | Warning Signs |
|---|---|---|
| Investor Quality | Backers with a strong track record | Lack of transparency about investors |
| Funding Rounds | Gradual increases in valuation | Sudden, unexplained price jumps |
| Lock-Up Periods | Strong vesting schedules | Short or missing cliff periods |
| Fund Usage | Clear milestones for development | Vague or unclear spending plans |
Polkadot (DOT) provides a good example of balance, with 58.4% allocated to investors and 30% to founders, all under strict vesting conditions.
Conclusion
Evaluating Web3 projects thoughtfully can help minimize risks and improve your chances of success. With predictions estimating a billion users by 2031 and an $827 trillion USD impact on industries, making informed choices is more important than ever. This framework focuses on key aspects like team reputation, market position, technical groundwork, and token behavior.
Evaluation Checklist
Here’s a checklist to guide your Web3 investment analysis:
| Assessment Area | Key Metrics | Target Indicators |
|---|---|---|
| Liquidity Health | Spread | 0.75% (small-cap), 0.55% (mid-cap) |
| Market Depth | Order Book | $1,000+ within 2% range (small-cap), $2,500+ (mid-cap) |
| Trading Activity | Trade Slippage | Under 0.5% (small-cap), under 0.3% (mid-cap) |
| User Engagement | Active Wallets | Steady growth in daily, weekly, and monthly active wallets (DAW/WAW/MAW) |
| Security | Audit Status | Completion of multiple third-party audits |
After completing this initial assessment, it’s critical to stay alert and monitor the project’s progress over time.
Project Monitoring
Ongoing monitoring helps you stay ahead of potential issues. Keep an eye on these areas:
1. User Engagement Metrics
Track daily, weekly, and monthly active wallets (DAW/WAW/MAW) to gauge user adoption. For example, THENA, a liquidity layer on BNB Chain, achieved notable success by generating over $33 million in revenue as of January 2025.
2. Security and Compliance
"Security breaches and regulatory non-compliance can cripple a Web3 project overnight. Investors should verify audits, security measures, and compliance standards before engaging".
3. Development Progress
Review progress against the roadmap and monitor GitHub activity to ensure regular updates and improvements.
By keeping an eye on these metrics, you’ll be better prepared to make timely decisions.
Investment Decision Guide
Before making any investments, follow these steps:
- Secure your accounts: Use two-factor authentication (2FA) and a hardware wallet.
- Diversify your portfolio: Spread investments across multiple projects to reduce risk.
- Start small: Test the platform with a small investment before committing more funds.
"In my mind, crypto [user] fees is the next scoreboard".
Historical data highlights the importance of caution. For instance, fewer than half of ICOs launched in 2017 remained active after just four months. This underscores the need for ongoing, rigorous evaluation.
