Token Analysis Framework: Identifying the Potential and Returns of Low Market Cap Tokens

Framework for Analyzing Low Market Cap Tokens: Identifying Potential and Returns

Researcher Flip Research outlines his token analysis framework in this article, which has helped him achieve multiple returns. Let’s take a look at how this framework can help you quickly identify high-return, low-risk investments.

Authored by: Flip Research

Translated by: Deep Tide TechFlow

Researcher Flip Research outlines his token analysis framework in this article, in which he bets on $GNS, $RDNT, and $JOE, all of which have achieved multiple returns despite having a market value of only a few million. Let’s take a look at how this framework can help you quickly identify high-return, low-risk investments.

Scope of the Project:

  • The narrative must be very clear. If it is a complex and niche attractive project, no matter how talented the team is, no one will buy it.

  • What is unique about the project? Does it bring something new to the market, or is it just a fork?

  • If it is innovative, is it difficult to replicate? Are they modifying the parameters of existing projects, or writing new code?

  • Following an existing narrative helps project development (such as LSD, the entire chain) because these projects already have a market.

Team:

  • Does the team look capable and how is their execution?

  • As long as they are highly capable, anonymous teams are also acceptable.

  • Check their audits, especially the resolved vulnerabilities. If they make elementary mistakes that lead to major/critical issues, be cautious about their new code releases.

  • If the project is just a tool for developers to raise money, then the project looks great will not help.

  • How is the team performing on social media? Both development and marketing capabilities are important.

Investors:

  • Large venture capital support is a double-edged sword. Their goal is to extract as much value from the protocol as possible and find ways to make you their exit liquidity. If you do buy a heavily VC-sponsored project, make sure you exit before they unlock.

  • Ideally, the focus is on self-funded projects with excellent narratives (such as $RDNT, $GNS). When venture capitalists buy on the secondary market, they become your exit liquidity.

Code:

  • Check your code, especially without audit. Use ChatGPT, which makes it easier than ever. If it is a forked project, compare it with the original project to see what has been changed. This is often very enlightening.

  • Look for bug bounties. Audits cannot match incentivized error discovery.

Token economics / utility:

  • First of all, FDV (fully diluted valuation) is a meme. Short-term supply and demand dynamics are important. Assume that the current price is in supply-demand equilibrium. How will this change over time?

Supply side:

  • Private/team unlocking plan.

  • How much is the incentive emissions? High emissions are acceptable if you exit before the emissions.

  • Are there any burning/locking mechanisms?

Demand side:

  • What is the mechanism for the demand side? How are they affected by platform metrics such as total locked-in value, fee income, etc.?

  • Check the on-chain data, what is the transaction pattern of the largest holder? Are they investing or speculating?

  • Does the token have utility? It’s difficult if it’s just governance.

  • Do not underestimate tokens with value accumulation.

Social media:

  • The key point here is where is your exit point? Even if the token economics, team, etc. look good, if everyone already knows and FOMO, then you might be exiting liquidity.

  • Conversely, if there is no hype, who will buy your token? This also indicates poor team performance in marketing and interpersonal relationships. Finding a balance in social media is very important and requires experience.

Roadmap:

  • In addition to good social media, an attractive roadmap is also essential. This brings us back to the issue of exiting liquidity. Even if a project runs well on token economics, human nature focuses on major price events, such as protocol upgrades, chain migration, and utilizing human psychology.

Other points:

  • Even if some tokens do not follow this framework, there will still be a rally. In general, it is impossible to know what is happening behind the scenes without insider information. Do not chase after rising prices; you cannot pick all the winners. Focus on where you have an advantage.

  • The macro environment is very important, which is why I spend most of my time trying to identify major macro changes. Even the best tokens are difficult to survive in the trough of a bear market.

  • Do not spread yourself too thin, as there are too many tokens to analyze. Focus on areas you understand and enjoy in a strong ecosystem with inflows of capital. For me, this is currently the $ARB ecosystem, especially DeFi.

  • Engage in social activities and discuss with like-minded people for more interesting and motivating experiences. You can obtain valuable information this way.

  • Do not worry about missing out on projects; just remember to invest decisively when you identify opportunities. Additionally, do not fall in love with your position, as the timing of exits is just as important as the timing of entries.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!

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