Team Risk
Is the team anonymous?
Anonymous teams are less accountable.
Does the team have a meaningful track record in crypto (“10,000 hours”)? Experienced teams are less risky than novices.
Is there information asymmetry?
Does the team have information you don't, or is everything on-chain?
Does the team demonstrate scrupulous honesty and integrity?
Are there red flags, yellow flags, or potential conflicts of interest?
Are the leader(s) self-promoters on Twitter?
Large Twitter presences can signal they’re primarily looking out for themselves.
Regulatory Risk
Are investors buying the token hoping the price will go up?
Forget any claims of “decentralization." Does it smell like a security?
Is the company headquartered in a jurisdiction without clear crypto regulation?
Small, crypto-friendly countries are better than large, unfriendly ones (U.S., China, etc.)
Does the company lead a specific niche of crypto (stablecoins, lending, etc.)?
Category leaders are more likely to be targeted by regulators, especially in the U.S.
Financial Risk
Is the company well-capitalized?
Do they have enough operating cash on hand and is it liquid (e.g., stablecoins)?
Can you easily explain the company’s business model?
Do you understand how they make money? Can you describe it to others?
Is there an element of “continually increasing returns?"
Do they promise investors, either implicitly or explicitly, that numbers will go up?
Does the company warn regularly about risks?
Do they make it a practice of pointing out potential downsides?
Have other credible investors raised warning flags?
Have you searched for alternate points of view and investigated their concerns?
Smart Contract Risk
Have their smart contracts been audited by a reputable firm?
Are the results publicly available?
Is there a public forum or repository for reporting bugs or issues?
Can you easily find it from their website or Github?
Has the company demonstrated responsiveness to reported issues?
Do they have a track record of responding decisively, or is there radio silence?
Has the company survived stress tests?
Has it held up during one or more market downturns, hacks, or other crises?
Does it rely on cross-chain bridges?
Historically, bridges between blockchains are honeypots for hackers.
Traction Risk
How many active users does the project have?
There’s some safety in numbers. More users generally = more responsibility.
How many followers do they have on social media (Twitter and/or Reddit)?
The court of public opinion can help with public accountability.
Is the project listed on major crypto exchanges?
Big companies want to protect their investors and provide further safety.
Financial Metrics
What is the expected return?
What is the standard deviation?
What is the Sharpe Ratio?
These can be compared across crypto projects for benchmarking.