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Framework for assessing potential bear market winners and losers

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Global Crypto Market

Today we will be covering:

  • Framework for evaluating tokens
  • Buying best practices

Even though some tokens have decreased in value, the macro environment may force them to decrease even lower. Use this framework to determine whether or not your tokens are worth retaining.

Are They Generating Revenue?

Protocols are businesses. Most give out inflationary tokens as a way to incentivise and bootstrap growth. The demand for inflationary tokens slows down in a bear market. When the hype’s gone, only the fundamentals remain.

Here are some ways protocols generate fees:

  • Interest fees
  • Bridging fees
  • Swapping fees
  • Liquidation fees
  • GameFi mechanics
More revenue Information can be found at @tokenterminal and @CryptoFeesInfo

What’s in the Protocol’s Treasury?

It costs $ to run a protocol: software, salaries, development, marketing, & other costs. Cash is oxygen for a business.

  • How much money is in their treasury?
  • What are their expenses?
  • How much runway do they have?

Treasury Composition: It’s risky if the treasury is 100% comprised of the native token.

What if the token crashes?

Diversified treasuries are good, along with some sort of treasury management strategy.

Locked Up Funds

Bear markets create sell pressure. With DeFi 2.0, some protocols started incentivising users to lock their tokens up for years such as Curve and LQDR. Locked funds lower selling pressure, showing user confidence in the protocol’s long-term future.

Utility and Use Case

It’s easy to rationalise the use case of any token when we’re in a bull market.

  • Now’s the time to ask why does this token exist?
  • What does it do better than its competitors?
  • What problem does it solve?

Their Roadmap

The Roadmap is a strategic plan for the future.

  • Check the developer activity via GITHUB.
  • Is the team actively communicating?
  • Are they hitting their milestones?

Succeed Breeds Copycats

Some categories become a Winner Takes All system. You want to bet on protocols that can potentially become market leaders. Once they’re successful, how will they STAY at the top? (Everything’s open source in Web 3, compared to Web 2)

Look For Moats

Moats are competitive advantages that are hard for competitors to replicate. Anyone can fork Sushiswap and create their own DEX.

So if a project is going to become the #1 choice, what’s going to KEEP them at the top?

It’s harder to establish moats in Web 3.0 because everything’s open source. Some Crypto moats:

  • Liquidity
  • Community
  • Brand value
  • Partnerships
  • Switching costs
  • Network effects

Disclaimer: The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. Please do your own research.