The development of blockchain networks is flourishing, with a plethora of cryptocurrencies and DApp ecosystem brimming over. At the same time, many low-value projects created for arbitrage and fundraising have been appearing frequently. Some of these project tokens are promoted to users through communities, while others are randomly airdropped into users' wallets. Users need to remain vigilant at all times, conduct thorough research before investing, and avoid substantial asset losses.
In this article, risky tokens refer to "shit coins" with a higher investment risk and lower potential. Typically, these tokens experience significant price fluctuations and often plummet after reaching high levels, keeping in a state of few value and development potential. Here are some tips for evaluating project risks before investing:
1. Learn About the Project - Primary Credibility Assessment
Firstly, check whether the project has actual use cases or products. Projects with only a "story" and no products have lower production costs and a higher risk of exit scams. Assess the project's value by evaluating whether it addresses real-world problems and its application in the market.
If the project has a white paper, delve into the details of the project's background, goals, team, technology, use cases, and issuance mechanism. A clear and detailed white paper is part of assessing the project's credibility.
Additionally, check the project's development history, know about its milestones and achievements in the past, and evaluate if it can progress according to the feasible future plans.
2. Learn About the Token - Beware of Fake and Junk Tokens
While researching the project, gather information about the token's issuance mechanism, token utility, and how the team manages token circulation to understand the token's sustainability. Tokens with limited application scenarios or poor ecosystem quality may lead to difficulties in price escalation.
Besides checking the token's price fluctuation history on platforms like CoinMarketCap and CoinGecko, use blockchain explorers to look up the token's market value and trading volume. Small-market projects are more susceptible to price manipulation, posing higher risks. Low trading volume indicates insufficient liquidity, leading to sharp price fluctuations. Be cautious about suddenly surging projects, as they may involve fraudulent activities.
3. Learn About the Team - Steer Clear of Scam Teams
Gather information about the project's team members through the white paper, official website, or social medias. Teams with experienced members are more likely to drive project development. While lacking practical experience or remaining anonymous are relatively less reliable.
4. Observe Community Engagement - Identify Disguised Phenomena
Check the project's social media platforms, forums, and communities. If there is a lack of interaction or numerous negative comments, be cautious in investing. If the community is active but the discussions are often unrelated to the project, or if the social media account is newly created for a short time, but has already acquired a large number of followers and likes, it is possible that those are paid online bots. In addition, the team's interaction on social media, the speed with which questions are answered, and the transparency with which important information is explained are all factors in assessing the credibility of the project.
5. Search for Additional Information from Multiple Sources - Supplementary Risk Assessment
Projects mainly driven by speculative demand rather than fundamental factors are more prone to high volatility and high risk.
Be cautious if the project aggressively promotes itself through urgent, high-pressure sales strategies. Scam teams often exploit investors' sense of urgency to commit fraud.
Check the project's security, review security audit reports, and understand the existence of security vulnerabilities. Strong security is also a crucial factor in gaining investor trust.
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