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How to analyze blockchain project, the off-chain metrics you want to track.
In my last video we talked about the off-chain metrics of a cryptocurrency. In this video I want to dive into the off-chain metrics of the blockchain itself, the blockchain that made that cryptocurrency.
Okay, what are off-chain blockchain metrics? It's simple, it's all the information out there about the blockchain project. What do we find out about the organization that actually designed this blockchain?
You should start with the whitepaper and the only thing I'm going to say about this is, does the whitepaper make any sense? Use your common sense. Is there a market for what they're building? Does it seem like this thing can be built? Just use your judgment on this one. If the goal of the project is to harness asteroids using blockchain technology and they're only raising a million dollars, it's probably not going to work.
Next, what can we learn about the community support for the project? This includes the developers who are building tools and services for the project as well as the people who are involved in other ways like miners, block producers (or guilds for WAX). If it's a DeFi-related blockchain, you want to look at how many people are actively engaged in using those DeFi services. Oh also, how much community created content is out there from fans of the project?
Another key off-chain metric to dig into is the quality of the developer resource tools. Does the project have a comprehensive developer portal? The resource material that developers need to build their dApp on that blockchain? Developer resources are critical but they're also very time consuming to pull together. If a project has put no time or obvious, limited effort into this area, I would be skeptical.
Next, what can you learn about the project’s funding, the financial resources of the project is definitely something you want to look at. How much funding does the team have to build what they set out to create? Does the project have the staying power to complete what they started?
Another useful metric is Twitter activity. Twitter sentiment is one of those terms people like to use for this. So how much is being discussed on Twitter about this blockchain project you're evaluating? And what is the nature of that discussion? Now Twitter is great because you're getting into real-time impulsive expressions of what people are thinking. Anthony Pompliano, a well-known crypto investor, uses a phrase for this: Twitter is the troll box - unfiltered rants, occasional insight about the blockchain project you are digging into. It's worth checking out.
Marketing is also something to consider. This includes many things like podcasts, YouTubes, written publications, presence at relevant conferences. Ask how is the team getting its message out?
Now I'm going to finish here with two off-chain blockchain metrics that I think a lot of people pay attention to but they probably shouldn't, or maybe you can take note of these things but don't read too much into them.
Okay, first, the venture capital firms that invested in the blockchain project. Now, I wish I had more time to dwell on this one. But here's what I have to say. It's fine to look at what VC firm might have tossed a few shekels into a particular blockchain project. But please do not think that fact is going to translate into some marker of success. Or even that those VCs know what they are doing. Guys, the traditional VC’s ignored the crypto space for years. They said stupid things like, “I love blockchain, but I don't like cryptocurrency.” How in the world you get decentralization without attaching a crypto to the blockchain?
If VC involvement was a necessary ingredient for the success of a blockchain project, then how do you explain Bitcoin or Ethereum, or my project Tether? The most successful blockchain projects of all time had no public VC involvement. So don't ascribe anything to that.
Can I offer you a cautionary tale of this? I'll give you a few years ago; there was a new blockchain project, a blockchain project that I knew something about. The team was going to create a new type of, wait for it, stablecoin. My partners and I invented the concept of the stablecoin, Tether, so I was naturally interested in what they were cooking up. I heard the pitch, young team, no real experience, new next to friggin nothing about blockchain technology, so I passed. Now, they were decent guys, but this project was not something I believed had much chance of succeeding. So a couple of months go by and I hear this team has raised 130 million dollars.
What? Who gave them that money? Well some VC’s did, a lot of VC’s in fact. Andreessen Horowitz, Google Ventures, Foundation Capital, Bain Capital Ventures, the list goes on and on. Now I get it, sometimes you throw a couple of bucks at a project and see if anything sticks but 130 million dollars? Well after about a year the team wrote an email to everyone and said “whoops turns out there's some problems with what we were trying to do and we aren't going to be able to build this thing. Here's your money back. Caveat, here's your money back less 10% you know like a convenience fee, a $13 million dollar convenience fee.” Remember, this project had the who's who of VC’s behind it but it was a bad idea from day one, and they didn't see it, so please don't put faith in a blockchain project because some venture capital firm decided to put money in it and probably at a lower valuation than you.
Okay, you get my point about VCs; their affiliation to a project is not some infallible signal that this thing is destined to be a winner.
Now, what about the advisors to a blockchain project? Oh boy. Same rules apply. Do you know that years ago VC’s got wise to this whole advisor thing? In the tech startup world back in the 90s, some clever entrepreneurs figured out that VC’s could be impressed with a few fancy names and titles slapped on a PowerPoint. Enter the age of “look at my advisors!” Advisors do not make a project successful. The day to day team does. Frankly I would pretty much ignore the “who are the advisors” metric. Could advisors be assigned that the project makes sense? Some group of highbrow technical thinkers like it? Possibly, but there are so many caveats to that it's really just best to discount the advisor list and move on.
I hope this helps you understand some of the off-chain metrics that should be part of your analysis of a blockchain, and maybe a few that shouldn't.
So that's it for this video. See you next time and don't forget to subscribe and check out the link below if you'd like to watch my video about off-chain metrics for crypto currencies.
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