How do you ensure a project is safe?
The world of crypto is becoming more and more popular all over the world. As a result of this, more people choose to start trading and investing in crypto. In fact, the amount of people who start trading and investing in crypto is expected to increase in the coming years. Not only is the amount of people investing in crypto rapidly growing, but also the number of crypto projects in which you can invest continues to grow.
But how do you choose which crypto to invest in, and how do you ensure a crypto project is safe? In this article, we‘ll give you a few tips on what to look for when researching a crypto project and its safety.
Who are the developers of the crypto project?
Building a crypto project is a lot of work, which is why there is often a large team behind a project. It is always helpful to research the names that are associated with the project. In many cases, well-known people in the world of crypto are associated with big crypto projects, but there are also plenty of projects that have names associated with them that are seen as untrustworthy.
Is there a big community behind the project?
A crypto project is largely about trust from the outside. Not only you as an investor must have confidence in the project, but there also needs to be a big group of investors that need to believe in the cause of the project. When a project gets a lot of trust, they build a large and loyal community, which also increases a project‘s chances of success.
Before investing, you can search online to see how many followers a project has, for example, on Twitter or Reddit. The more attention a project gets through social media, the bigger the chances are that a project will grow in holders or marketcap.
The whitepaper of the project
Another important thing to look out for is the ‘White Paper‘ of a crypto project. The White Paper is a roadmap of the project; it lists the goals and shows tokenomics and technology behind the project. When a project does not have a White Paper, it might be better to keep searching for projects that do provide this information. On the other hand, a White Paper does not guarantee the success of a project.
Holders, (decentral) exchanges, and liquidity
Last, it is important to look at the amount of holders of a crypto coin. This can be seen on the chain the coin is built on. When looking at the on-chain data, make sure to check the amount of coins that the top holders possess. When holders possess a significant amount of coins of the total supply, it may have a big impact on the price when that holder sells his coins.
Furthermore, the chance of a project being legit increases when a project is listed on a central exchange. This, is because often, a project team has to go through a KYC (know your customer) process. In general, the more holders (also on central exchanges) a project has, the less volatile the price of that coin will be. Unfortunately, the amount of holders of a coin on a central exchange can not be seen.
When a coin is not yet listed on a central exchange, but only on a decentral exchange like pancakeswap or uniswap, make sure to check whether the liquidity pool is locked. This means that no person can change or withdraw funds from the liquidity pool. Within a liquidity pool are crypto coins and investments of holders. When something happens with the liquidity pool, it could have an impact on the price or the possibility of buying or selling coins.
A final check could be to check whether the project team of a certain project is still providing updates frequently. This is to make sure that a project is still in development and promises are kept. A project in development often has more potential than a project without any development.