The word may mean any type of information gathering and armchair analytics. For example, one may focus on a very specific topic like “Copy Trading vs Manual Trading: Which Strategy Wins?” and try to learn everything about different approaches to work with cryptocurrencies. However, the main reason this abbreviation is often thrown around is the fact that many DeFi projects are quite complicated and novel. Investing in them without any prior research often results in financial losses.
Making uninformed financial decisions is bad whether you focus on cryptocoins or traditional asset classes. However, we have been around stocks and bonds for over a century making them intuitive to many beginner retail investors. When it comes to the world of blockchain, you have to understand DYOR meaning that you should develop some habits and routines to identify potential risks and advantages of purchasing certain assets.
The Importance of DYOR in crypto
In 2008, Bitcoin was the only blockchain currency pioneering the new concept for everyone. Early adopters were literally begging people to start buying but many did not want to even think about it. Over 15 years later, the same people are biting their nails and feel enormous regret. A couple of years ago, when $BTC reached its ATH, many people jumped on the bandwagon and started buying. Many experts predicted that after hitting an ATH, the coin might go down, but people did not listen again and lost money.
Anther story in the cryptocurrency industry is about Terra Luna. This stablecoin promised to create a new paradigm for the blockchain industry and bridge the gap between TradFi and DeFi. The generous offering of incredible rewards and returns was, unfortunately, enough to lure in millions of people from all over the world. We all know what happened next: Luna collapsed and caused massive financial damages.
These two anecdotes explain why DYOR in cryptocurrency is so important and allows people to make smart financial decisions while improving risk management in crypto trading significantly. Retail investors who engage in public discussions, carefully read technical documentation, comb social media, and gather information from as many sources as possible often can see risks and dangers of investing in certain projects way before others.
How to do DYOR in crypto
Some people do not understand what it means to do your own research when it comes to analyzing crypto projects. Consider an approach that a typical investor would take during the selection process for the next stock to buy. In many cases, they will go through their annual reports, read what analysts say, consult with a professional, and go through with the decision to buy or move on. The information on the financials of publicly traded companies, governments, and other large institutions is readily available.
The crypto market is very different. Many projects have obscure descriptions, founders without any prior history of releasing something massive, and lots of disinformation floating around on social media. It is quite hard to make an informed decision when no one knows which assets will go up and which are destined to fail. The prevalence of rugpulling, fraudsters, and incompetent developers also inhibits the ability of a retail trader to make a good choice.
Here are things that you can do to gather trustworthy information about any project:
- Read their whitepaper. This lengthy document usually outlines how the technology works, how the tokenomics will work, and how developers and users will be incentivized to use the platform. A whitepaper is the foundational document that allows outsiders to learn more about the inner workings of a project. However, reading and understanding these docs is a skill that requires some honing before becoming efficient.
- Engage with the community. Talk to people enthusiastic about the project, but do not share their enthusiasm before meticulously thinking about their words. In some cases, people become agitated and believe everything that developers tell them. However, they are also the most informed ones. Discord servers, social media groups, and messengers are good places to look for advice.
- Look at the potential future and existing listings. If a token is not listed by many established CEX platforms, it means that large players in the industry do not have faith in the project which may never reach its true potential. It is a good idea to consider for purchase only a handful of promising tokens that will be listed by one of your trusted CEX companies.
- Do not trust the hype. Many projects are hyped up by influencers and celebrities. While some think that it is a sign of trustworthiness, we believe that it is more often a red flag rather than a positive signal. Separating good, fact-based information from smart marketing is what lays in the foundation of working analytical approaches.
- Test the numbers. You will often hear how new DeFi platforms brag about instant transactions, high throughput, technological stability, and other impressive features of their products. The easiest way to verify their claims is by becoming a user. Simply make a couple of transactions and see whether they are quick, cheap, and easy to complete.
The best DYOR strategies for crypto
The general rules outlined above should be present in any research process if you are interested in cryptocurrencies. A smart investor never makes decisions based on gut feeling alone or by following advice from someone without any background in finance. It is hugely important to use as many good crypto research tips as possible when trying to choose the right investment path.
We want to give you some advice to become informed about various DeFi projects:
- Use analytical tools. Many vendors of financial management tools offer ways to monitor the market or assets under management. Using top crypto portfolio trackers is a good approach when comparing assets to each other to find underperformers. These instruments can be invaluable for those seeking long-term investments.
- Make sure to understand the whitepaper. The amount of technical jargon in the documentation aimed at potential investors can be overwhelming. In many cases, the use of buzzwords and scientific terminology is there to weave a veil of mystery around the project and confuse newcomers. Make an effort to get through the language and get a grasp on how the technology will work.
- Think about the utility. A DeFi platform that does not provide useful functionality will inevitably crash and burn. Exceptions from the rule exist $DOGE and $SHIB are good examples of mostly useless digital assets that managed to rally the community and turn into something big. However, the vast majority of tokens that do not carry any utility cannot hold on for long.
- Burst out from the info bubbles. It is imperative to have an outside perspective when analyzing crypto projects. Talking to people outside of friend groups and tight communities is a good way to remove the rose-tinted glasses and have a good look at the project instead of cycling through several positively charged talking points.
Step-by-step DYOR in crypto
What is DYOR in crypto? It is a general advice from more experienced users to beginners. It means that any responsible retail investor must think independently, make decisions without being influenced by others, and take on responsibility for their purchases and outcomes. The cryptocurrency market may look like a dark forest too hard to navigate without any help. However, you can follow some simple frameworks to make better investments.
Here are steps to take if you want to really do your own research:
1. Identify good target assets. You must understand that some digital assets suit certain risk styles and requirements better than others. For example, people on a tight budget might be interested in cheaper coins or upcoming projects. If you are sensitive to risk, considering established projects with more predictable price action movements is a better idea.
2. Read the technical documentation. Visit official websites and pay extra attention to whitepapers, instructions, technology descriptions, tokenomics, and anything else provided by the developers. It is extremely important to have a first-hand experience with the data that other members of the community talk about.
3. Infiltrate the community. Visit Discord servers, Telegram groups, subreddits, and other places where users of the platform can interact with each other and discuss its future. Follow our tips and do not get charmed by the hype and enthusiasm of some passionate community members.
4. Obtain the context. Reading news stories about the project and opinion pieces from experts can be quite informative and provide more puzzle pieces for you to work with. Some say that there is no such thing as too much reading. The DYOR definition is researching something as well as possible personally which involves a whole lot of reading.
5. Make small purchases. As in case with any asset, it is a good idea to start slow and keep an eye on your portfolio. For example, you can engage in automated cryptocurrency trading to acquire assets using established methods like DCA (distributed cost average). This way you won’t expose your portfolio to excessive risk and can systematically increase the share of certain assets after intimately working with them.
6. Do not stop researching. DYOR is not a one-time thing. You have train yourself to regularly update he existing body of information you have in mind. Projects that start well may not continue performing excellently in the long run. Keep track of roadmaps and the delivery of new features, continuously engage with the community, and read relevant news stories.
Avoiding crypto scams with DYOR
The most important aspect of this general rule is identifying fraudulent projects that do not deliver on their promises. Making sure to dodge rugpulls, scams, and poorly designed platforms is just as important as picking the best tokens to invest in.
Here are some “standard” characteristics of a typical scam:
- They use too much jargon. If you cannot understand what the leadership is trying to convey through language, it often means that they are deliberately trying to sound as smart and confusing as possible to hide inadequacies in their plans.
- The technology seems useless. Some developers are trying to solve issues that do not exist. It was the case with many NFT projects that tries to complicate already well-established business processes instead of making them more convenient and efficient.
- Social media influencers cannot stop praising them. If a crypto project is bathed in hype from finfluencers, celebrities, and YouTube experts, it may be a strong indication that you are looking at a rugpull scheme that should be avoided.
- Do you think that your target asset has some of the traits we pointed out above? Well, you should be cautious and use some methods to identify fraudsters:
- Take a very close look at the team and founders. A project that hopes for its long-term future is often created by passionate individuals who have nothing to hide. It is a good sign if a team has funders with experience in blockchain or finance. Checking the team on LinkedIn or GlassDoor is a good practice. Investigating past projects and looking for elements of fraud is another valid approach. Remember that an honest team wants to be transparent.
- Smart contracts must be audited. Since many DeFi platforms rely on them to provide services, security and technological soundness must be verified by experts. Auditors like CertiK and Quantstamp are often hired to ensure that projects have their bases covered and work on a robust foundation. A good sign is when a platform has an active bug bounty program incentivizing independent experts to stress-test their architectures.
- What about the market performance? Liquidity and daily trading volumes are commonly used to measure the health and legitimacy of DeFi projects. Liquidity pools can be checked by anyone and must be stable and large enough to support the ecosystem. Massive movements of assets should be investigated as they are often used to artificially boost numbers alongside HFT market making. Over 60% of rugpulls occur due to rapid inflation of trading volumes.
- Incentives often paint a weird picture. Tokenomics play a huge role in the development of any project. It is important to take a good look at the distribution of tokens. If the team wants a quarter of all the tokens, it is a red flag. Another important factor is inflation. The rate of minting must be reasonable to prevent supply issues. The last thing is the reward systems which should not be too generous and offer numbers that are too good to be true.
All in all, this framework is a good DYOR crypto guide for newcomers. Experienced users tend to know these tricks and methods intuitively. Unfortunately, many learn them through trial and error after losing money due to insufficient research on their part.
It is also important to use advanced tools to engage with target assets. For example, you may experiment with a TradingView AI bot to automatically trade tokens from ecosystems that appear to be healthy and sufficiently popular. You don’t have to engage in the market personally and try to learn everything there is to learn. Instead, relying on technical analysis and robo-traders may be a better approach.
Why DYOR is important in cryptocurrency
With the absence of official authorities with the necessary tools to protect average retail investors, it is hugely important to remember that the responsibility for each investment decisions falls on the shoulders of people buying and selling crypto. Since there is no one to bail you out in case of a bad investment, you must be your own savior. Doing research personally in hugely important and allows you to avoid potentially dangerous tokens.