Criteria to study the viability of crypto projects

Since 2017, when the ICOS boom was experienced, any investment in crypto projects deserves a thorough study. I do not mean in this article to invest in Tokens for speculative purposes, but to investment opportunities based on issuance projects of a token. Like any good investor, you should not get carried away only by impressions or sensations. Quite the contrary, every investment requires a detailed study, leaving out moods, tastes, sensations or first impressions.

From my experience, the study of every project must answer strategic questions such as What is the final objective of the project? What does this project really contribute? What is the problem you want to solve? Is there another similar project that is solving this problem and how is it working? Can the problem really be improved now, and why yes and not before? The reality shows that a good project has many possibilities of great profitability. This is the case of Bitcoin, Ethereum, Chainlink, Compound, Aave, Uniswap etc. They are good products that have offered good and real solutions to the crypto ecosystem.

In relation to the analysis tools, it seems to me that a first, widely used study is the SWOT. It will help us to specify part of the questions that we must answer and we cited in the previous paragraph. This tool studies the situation of a company, institution, project or person, analyzing its internal characteristics (Weaknesses and Strengths) and its external situation (Threats and Opportunities) in a square matrix.

A second study that is always recommended is that of Porter's forces. It may be useful to use only some of Porter's forces, and not all. However, the use of this technique is relevant. Some of the points that we can face are the following:

1.- Rivalry between companies: is the result of the other four forces. Depending on the rivalry between the competition, the profitability obtained in the sector will be higher or lower.

2.- Bargaining power of customers: If the market has few customers, there is a risk that they are well organized and agree on the prices they think they have to pay. This becomes a threat to the company.

3.-Bargaining power of suppliers: threat borne by providers due to great bargaining power.

 4.-Threat of new incoming competitors: there are certain entry barriers to new products to be introduced in a certain market.

5.-Threat of substitute products: In markets where there are products that are very similar to each other, it represents a low profitability for the vast majority.

Third, we have the Canvas. Personally, I think it is one of the most relevant since the positive and negative aspects of a project can be emphasized from various points of view. Let us bear in mind that many times, the promoters of a project - issuance of a token- They focus on highlighting the virtues to attract investors. Therefore, it is up to each investor, with a critical spirit, to detect product failures.

Specifically with this Canvas tool we must answer these questions:

Customer segment: It is necessary to detect if the project is meeting the needs of the market and the client. Specifically, we should know if the project can answer these questions: for whom is it creating value? Who are the most important customers?

Value proposal: it is the linchpin of the entire business model. The value proposition or competitive advantage is the reason why the client will bet on the project. This includes what makes the product / service different and innovative. You can innovate in different aspects. We must know about the project: What value is generated to customers or tokenholders? What problem do you want to solve? What is it really achieving? What is the need that the project wants to satisfy? In the event that the product does not really contribute something, it will cease to be of interest. It could be of interest only as a speculative bet, not as a serious investment. It would be like gambling money in the casino, but in the crypto world.

Channels: We must know, in the project, which are the distribution channels of the product or service. The questions we must know are: What channels does the product have to reach the customer or tokenholder? What channels work best? Which of these channels are the most effective? In the event that the project does not have this well developed, it seems to me that the effectiveness of the project should be doubted.

Relationship with customers: the promoter group must communicate correctly with its clients and be aware of them. Therefore, it is advisable to join the Telegram group created for this purpose, and follow the project on social networks.

Income stream: For a business to be profitable, we must know how the project is going to be monetized? That is, where are you going to get the billing from? What is the main line of income? Many crypto projects are unviable. If a clear answer cannot be obtained as to how the project will earn money (regardless of the investment made by the tokenholders) the project is of no interest.

Key resources: We must know the resources that the project has to get ahead. We must know specifically: What essential resources does the value proposition require? And once this question has been answered, does the project have those resources? And in relation to the above, key activities. To carry out the value proposition, certain activities are necessary to prepare the product before it reaches the market. We must respond to: What basic activity does the value proposition require? What are the channels? What are the sources of income? And a third reflection related to key allies. To run a business, it is essential to have allies. We must respond to Who are the key partners in the market? Who are the providers? Some projects have important allies, who ensure the viability of the product.

Cost structure. Obviously, all this infrastructure has costs. We must identify the fundamental expenses of the business. We must respond to:

What are the most important costs within the business model? What key resources are the most expensive? What key activities are the most expensive?

Lastly, I recommend the "PEST analysis". Study the factors that are classified into four blocks:

1.- Political - legal: they are factors related to the legislative regulation of a State. This is very relevant in the crypto world, since depending on the jurisdiction chosen, the project will or will not be viable.

2.- Economic: are the economic factors that affect the market as a whole (some sectors more than others).

3.- Socio-cultural: configuration of the market members and their influence on the environment.

4.- Technological: state of technological development and its contributions to business activity.

It can be concluded that the crypto world offers a number of new products. It is up to each investor to learn and have tools that help identify the good project from the bad. Being methodical and hardworking, you can get the project investment right.

*The opinions expressed in this article are those of the author and do not necessarily reflect the views of the administrators of The Crypto Legal blog or the Lawgic Tec association.

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Ignacio Ferrer-Bonsoms
Degree in Law from the University of Navarra (2002). Lawyer at Ferrer-Bonsoms & Sanjurjo, based in Spain. Specialized in Blockchain, cryptocurrencies, digital contracts and international law. Collaborator with various digital media.


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