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The lucky man with a keen sense of investment is made like this!
Written by: Cai Yan (llamacorn), Managing Director of NGC Ventures
Because of the Black Swan incident in which the Cover protocol was attacked last month, I suffered a huge loss on Cover (I had been before) , so that I have been in a confusion of thoughts recently. In any case, I am very grateful to my friends for their comfort. Yes, life is always full of regrets.
First of all, I must admit that before this accident, I did not conduct thorough research on most projects. This is a kind of path dependence and overconfidence, and it may also cause some judgments in this article to be wrong. All personal opinion is biased, so please pay more attention to methodology rather than the final result.
Another disclaimer is that the methodology is not applicable to the current crazy bull market. Because of the current bull market is broad based, high emotions caused. At the same time, I found that it is difficult for me to make money by switching positions following the hot market, so I have time to write this article.
Thank you for your patience to finish this article.
When we look back at 2016-2019 encryption currency era (the era of so-called public-chain), we do not judge strictly male chain project, because most of the chain is still at a very early stage, and not worthy of analysis of ecosystems. This is the greatness of Ethernet Square: 2019 decentralized application DApp rise in 2020 DeFi flourish. DeFi users rapid growth, which enables us to evaluate the project based on narrative and data. (Maybe there are other methods, but today I want to focus on these two aspects)
Concepts and mechanisms of the narrative means that project data directly on behalf of the various manifestations of the project. For me, I use narrative and data axes to divide the project into four quadrants.
Projects in Quadrant 1: Well-known projects (market value within 100)
Projects in Quadrants 2 and 4: Projects that performed well (market value between 150–300)
Quadrant 3 projects: new projects, or projects already dead garbage project (in addition to the market value of 500)
Value narrative and data axis
You may be confused, why certain rankings do not exist in any quadrant, I want to name them ” buffer “. An item may easily stay in the 2nd and 4th quadrants steadily, but if it wants to enter the 1st quadrant, it needs to go through a “buffer”.
The simplest profitable projects from the third to the second quadrant and 4-quadrant or “buffer zone”, the project only needs the value of a force or narrative aspects of the data. However, if a project wants to enter the first quadrant, its value narrative and data needs to be enhanced.
To be honest, it is difficult, and sometimes it takes some luck.
The most difficult thing is to advance the project from the third quadrant to the first quadrant. If you do this, you are the lucky one with a very sensitive investment sense.
I tried but failed: I bought Cover tokens at a price of 150-300 US dollars. The market value of the project was ranked 400th, with a top ranking of 130 , and finally returned to zero on the Binance exchange. This is very sad.
Explain in detail with examples
I must clarify the narrative – right between the data is not heavier than 50/50, it depends on your personal preferences. My personal opinion is as follows:
When is value narrative more important?
I said before, most of the easy money from the project in the third quadrant of the project entered the second and fourth quadrants. My personal preference than the value of narrative data at this stage, the weight ratio may be 90/10.
I am giving a detailed case of value narrative analysis. I will give a simple but clearer explanation in this article.
Take the DeFi interest rate agreement field as an example. Many projects have emerged in this field, some of which have been endorsed by well-known investors. I will only compare the protocols that have already launched tokens, namely Saffron , 88mph and Barnbridge . Now these three are in the 2nd and 4th quadrants, but at the beginning they are all in the 3rd quadrant.
First of all, I recommend that you understand the concept of traditional financial or in fixed-income structured products. But it doesn’t matter if you don’t understand it, you just need to know that it is a new field and there are few competitors now.
The three projects to do more similar, is the risk classification (Risk Tranching). That is how to provide according to different grades of risk to people fixed interest rates, and how to leverage these rates increase to meet the needs of high-risk investment preferences persons.
Saffron designed a 3-level risk system. Class A provides normal interest rates under low risk, part AA provides 100 times interest rates under high risk, and part S lies between these two levels for rebalancing. S-level is temporarily merged with AA-level. The project did not clearly tell us how to implement this idea, but it is indeed an interesting attempt. The product is currently based on the DAI / COMPOUND and DAI / RARI hierarchical structure. The TVL of the deposit pool, pledge pool and liquid mining pool is 37 million U.S. dollars. The value narrative and data are very good.
88mph’s cute user interface design and the name of the classic sci-fi movie ” Back to the Future ” can easily attract people’s attention. Looking back at other products created by the team (Bacon Labs) , this style is very fascinating, and I cannot describe it with a very accurate word. Back to the subject, 88mph soon launched its own product.
It was originally to do two things: First, the integration of multiple protocols (such as AAVE, Compound and Harvest) of fixed-rate deposits. Another is floating rate bonds, bond buyers to do more on behalf of the interest rate. It is updated frequently in terms of products and cooperation, and the team always has some new ideas. But TVL was not ideal in the first two months. I remember staying at US$2 million. Fortunately, TVL has been growing. The total TVL is currently US$22 million , of which US$9 million is deposit TVL, US$4 million is liquid mining TVL, and US$9 million is pledge TVL. The value narrative itself is very strong, and the data performance is getting better and better.
The TVL of Barnbridge was very large during the initial liquidity mining, and the project has not yet launched a product. But it achieved a TVL of USD 577 million at its peak, and it still has USD 340 million . The largest fund pool is the USDC / DAI / sUSD fund pool, which is a lossless fund pool, and the token price guarantees its considerable annualized rate of return APY. Even compared with other protocols, its data performance is very beautiful.
If I have a chance, I’ll be here all three projects is still in its buy tokens when the third quadrant. But if I could only choose one item, I will focus on iterative capabilities of their products. Because the high APY cannot be maintained for a long time, you can bet on their chance of entering the 2nd and 4th quadrants from the 3rd quadrant, but I bet on the chance that 88mph will eventually reach the 1st quadrant or “buffer”.
In any case, these agreements are still under construction and you should pay close attention to their progress.
When is data more important?
Data may be modified or forged. When we estimate the items in the third quadrant, it does not matter whether the data is true or false. However, the data is very important when evaluating the possibility of a project from the 2nd or 4th quadrant to the 1st quadrant .
If I were a data scientist, I would get very rich and useful data from the blockchain for modeling and analysis. But I am not, I will only give my own simple method here.
1. Use third-party data to obtain comprehensive information
Many data sites are very helpful, such as Debank, Defipulse, Dune Analytics, etc. When the business of a project enters explosive growth, a clear buying opportunity arises.
The biggest opportunity I missed last month was Sushiswap . Sushiswap is a decentralized exchange DEX. As an agreement to completely fork Uniswap, it used to be in the third quadrant. However, its early extremely high APY attracted huge liquidity to mine TVL, making it enter the fourth quadrant. With strong capital endorsement and developer power, Sushiswap reached a partnership with Yearn in December 2020. Afterwards, its product line began to differentiate from Uniswap. The value narrative is enhanced, and the project also gains an opportunity to enter the “buffer”. Since then, I should have realized its potential to move into the first quadrant, but I did not.
The main general data of DEX are transaction volume, users and number of transactions, all of which can be found in Debank . Now, the number of these three items of Sushiswap ranks second only to Uniswap (I won’t put the page snapshot here, you can check it yourself) . As shown in the figure, Sushiswap’s growing business data since December last year is very beautiful.
Sushiswap liquidity and transaction volume
Other data, such as social media number (promotion effect), Github update (development capability) fans, can help you determine basic information about the project. The following is an example of the number of social media fans and development capabilities produced by Santiment.
Sushiswap social media followers and development capabilities
And you can also refer to some indicators or models created by data analysis websites Nansen, Intotheblock, TokenTerminal, Santiment, etc. This is an example of a P/S indicator designed by TokenTerminal , the ratio of token price to sales. As shown in the figure, Uniswap and Sushiswap are both underestimated.
DEX token price to sales ratio
2. Use the data of your choice to find the ideal project
When the object is compared item 1 limit, I personally pay more attention to whether the project has relatively deep cultural heritage. Some data customized and selected by you can help you make judgments.
For example, Sushiswap currently ranks 51st in market value, and I personally feel that it is a bit high. Sushiswap of transactions amounted to Uniswap half, but only one percent of the number of users and the number of tokens traded Uniswap of. This makes me feel great divide, Uniswap as a pioneer in the field of DEX, its market influence and the user dependence is much greater. The analysis of Sushiswap written by Santiment is very objective.
For another example, many projects currently use Snapshot for voting and Discord/Telegram for community chat. But I prefer the project has a forum. The forum may be out of date, but I think real project enthusiasts will turn on their computers and post long posts on the forum for suggestions or discussions.
My personal favorite project AAVE has a forum, as well as Yearn and Uniswap . To some extent, the data listed below can help you determine whether the forum is active. You can choose more indirect data and read forum discussion articles yourself to judge the quality of the forum.
When researching projects in the future, maybe I can find other interesting data, but I can’t model it. Data thinking is divergent, and I can feel far more than I can understand.
Never ignore token economics
It can help you determine the best price you want to buy.
If the token economics of a project is not as bad as Curve , you can avoid this trouble. Of course this is an exaggerated joke of mine. Curve is an excellent stablecoin swap protocol, but it has a very large supply of tokens, and 62% of the supply will be allocated to liquidity providers within 2 years , resulting in a very low initial circulation, but every day Token selling pressure is high. The price of Curve Token rose to a maximum of 30 USD when it was launched, and it is now 1.5 USD.
Normal token economics will not have much impact on prices, especially in a bull market, but if it can inspire token economics of the project performance is reflected in the price of its currency, then the situation would be better. Moreover, if you are a qualified cryptocurrency investor, you can definitely calculate its initial market value, fully diluted total market value, and some other parameters. If not, you can also check it through Coingecko .
As an encryption currency investor, I’m still a rookie, I wrote my own almost all of the most important methodology in this article, and hope that it will in some way to bring you inspiration. Any other comments are welcome.