How To Do Your Own Research (DYOR) On Cryptocurrencies
“Do your own research.” Or, simply, “DYOR.” It’s an acronym you see a lot in the crypto and overall investment space. But what’s it actually means to do your own research? Below, we cover how research cryptocurrencies.
Crypto investors, understand this: A big part of DYOR involves digging into the fundamentals of a given cryptocurrency. Once you know what fundamentals to research, it’s rather easy to DYOR. Below are several fundamental areas that you should consider including in your DYOR process.
Crypto projects ≠ cryptocurrencies
The word ‘project’ is important to define. Crypto newcomers often misunderstand it. Projects and cryptocurrencies are different things. For example, Ethereum is a crypto project, not a cryptocurrency. (When someone says they “bought Ethereum,” they actually mean they bought ether (ETH)—the cryptocurrency that is native to Ethereum.)
Often, crypto projects will have underlying cryptocurrencies tied to them. So, if you’re looking to invest in a cryptocurrency, you should definitely DYOR on the project to which it’s a part of.
The best place to get all the information you need about a project is its website. Reading a project whitepaper, if available, is also strongly recommended. (Try to look past buzzwords like ‘decentralised’ and ‘scalable’.)
READ: Identifying Where to Buy Cryptocurrencies
Industry research
What’s the real-world industry or sector that the project is looking to disrupt? Knowing that answer will indicate how much potential value could flow to the cryptocurrency, assuming the crypto project’s solution is better than what currently exists.
Team size and experience
In the crypto space, founding teams often stem from the same company, startup, or college. Many crypto projects are under development at the time of investing in the underlying cryptocurrency. For that reason, it’s crucial that you research crypto founders’ professional and educational history.
Read the project whitepaper
Per the Collective Shift crypto glossary, a whitepaper is “a document prepared by a project’s founders detailing the problem the project addresses and how a blockchain-based cryptocurrency is fundamental to said project’s existence.”
If you finish reading a whitepaper with more questions than when you started, it’s not a great sign. Of course, you can verify any queries with the project’s team members and/or community. (Doing this is often a time-efficient way to learn about a project and the role of its native cryptocurrency.)
Sources of funding
Find out whether the company behind a given crypto project has previously raised venture capital and/or private equity. If they have, go a step further and look into which investment firms and angel investors have invested.
If reputable, experienced investors have backed the project, you can generally take that as a reason to continue doing your own research. (Just remember that even the best investors make bad calls!)
Also, sometimes you’ll find that projects have received non-equity grants through accelerator programmes. These are typically administered by government-backed entities or the innovation arm of technology multinationals.
When you DYOR and find a project that’s received this sort of funding, it’s generally not a bad idea to further research the project—along with its native cryptocurrency.
Partnerships
Examining the quality of a project’s partners can be a great way to figure out how promising their solution—and thus the potential value of its cryptocurrency—is.
Partners can be native or external to the crypto space. Crypto investors tend to give more value to external partners. (If you’re a crypto project founder, convincing a non-crypto company to partner or collaborate is tough work—as it should be.)
Be careful, though. If the project you’re researching claims to have partnerships with world-leading corporations, you should inspect the partnership announcement and the terms of the partnership.
Blockchain technology use case
Understand why the use of blockchain technology is inherent to the project’s very existence. That is to say, why has the team chosen to build its solution with blockchain? The whitepaper should clearly explain this. Often, the project will have blog posts expanding on this—as it’s extremely important.
READ: What Is Blockchain Technology?
Know the token type
It’s vital to know the function of the cryptocurrency you’re thinking about investing in. The way cryptocurrencies capture value varies tremendously.
For example, work tokens (e.g., Livepeer’s LPT token) are fundamentally different to utility tokens (e.g., the Brave browser’s Basic Attention Token (BAT)). And these are fundamentally different to cryptocurrencies (e.g., the Bitcoin network’s bitcoin (BTC)).
Leverage other crypto research
The crypto space has evolved significantly in recent years. This is a great thing for crypto investors. That’s because there’s now a lot more publicly accessible research to use. It’s highly likely the cryptocurrency you’re considering purchasing has been covered by independent analysts. (A simple Google or YouTube search will tell you if it has.)
Track record
If the crypto project has existed for a while already, it’s worth looking over their roadmap and past blog posts. This will help you determine how tightly the team sticks to their deadlines, or whether they have a history of delaying releases.
In instances where deadlines have had to be postponed—which happens for all sorts of reasons—seeing how the team communicates this (if at all!) can reveal plenty about the nature of the team.
This is important to include in the DYOR process because it’s ultimately the team that is responsible for the value of the underlying cryptocurrency. If the solution they’re building doesn’t turn out to be what they said it would, the price of the cryptocurrency will most likely struggle.
Upcoming dates
For crypto traders and investors alike, it can be worth knowing what’s down the pipeline for projects. That’s because the price of the project’s cryptocurrency usually becomes more volatile in the period leading up to a key date. Examples of key dates include mainnet releases and major version upgrades.
Why Doing Your Own Crypto Research Matters
DYOR is a very important concept to follow in crypto as well as other areas. In crypto, it’s especially important because regulations over crypto remain vague and underdeveloped. Unfortunately, this means that there are a lot more scams than in traditional financial markets. And so, it’s crucial that you DYOR.