Many De-Fi Protocols Do Not Require a Token

The world will likely be fully tokenised by crypto in the future. The token model has two essential features that will benefit most companies, i.e.

• The token model supports the partitioning of governance.
• It also increases liquidity and supports a secondary market.

However, tokens are created to align the team’s pockets in crypto, other than supplying tactical benefits. The crypto world offers many outstanding projects. However, this field is flooded with cons, who might possess great products but worthless tokens. Here are some requirements that a token must meet:

• The token should fill the needs of a market.
• It should have a competitive advantage over rival protocols.
• The price increment should show user growth.
• Should possess other objectives, aside from making money.

Most VCs Earn by Making Early Investments in Token Seed and Secluded Sale Rounds

For you, a project might look cheap, but remember that VCs acquired it at much lower levels. For instance, initial private round investors joined the $SOL project at $0.04. Today, the project is over 2000 at its previous level. Other projects bought by the investors include $FTM at $0.043, $AVAX at $0.50 and $BNB for $0.15.

Consider checking the prices of investment rounds. New projects can’t come up with the funds and support required for building. Therefore, seed rounds and private rounds are vital for the development process. Large sell events created might lead to profit-taking.

Before investing, it is essential to monitor unlock dates. Every project is obligated to show its vesting schedule. The main points to look for are:

• Unlock the date of the tokens.
• The steepness of the “cliff.”
• Positional allocation of the tokens.

Most Projects Lack a Product

For development bootstrap funding, most projects employ their private and seed rounds. They will outline an extravagant white paper and determined blueprint before building anything. This is normal crypto functioning.

However, when markets induce an overpriced estimate on a project that is yet to be made a product. If this happens, the risk profile of the investment experiences a significant upsurge. For instance, several projects with more than $100 million (£80 million) valuations exist but have very little or no product present.

Before investing, you must:

• Analyze the team’s track record.
• Determine the project’s most prominent backers.
• Analyze the team’s valuation against other projects.

APRs Should Incentivise Liquidity

Today companies use incentives to encourage people to use the money on their products. This technique is also used in the crypto world. Yet in crypto, these incentives are given as discounts. The token emission model is used by the DeFi project to increase early liquidity. Projects such as the $LUNA have used this model successfully. However, this model has also resulted in the downfall of most DeFi projects.

Since tokenomics are often designed poorly over, dilution is very common. It is advisable to identify projects with the following qualities before investing;

• The project should have high fees created vs emissions.
• It should have real utility.
• Possess a robust token rate.

Remember that buying a token only because it has a high-paying APR is not advisable.