This useful checklist and list of resources will help you to put what you’ve learned into practice- when researching a token, try to answer the following questions. 

1. Supply: 

When looking at a crypto’s supply, it is vital we consider how the supply will change over time, as this is a determining factor as to whether the token will hold, increase or decrease in value over time- read more. 

Circulating supply:

The circulating supply is the number of tokens that have been issued so far (the number of tokens currently in the market). 

• How many tokens exist right now? (What is the circulating supply?)

Maximum supply:

Note that for some tokens, there is no set maximum supply. When we compare the circulating supply with the maximum supply, it tells us how many more are going to be released, which is vital when considering the potential value of a protocol in the future. If the circulating supply is low, but the maximum supply is high, that’s a red flag as it could cause the value of your tokens to be diluted. 

• How many will ever exist in the future? (Is there a maximum supply?)
• How does the maximum supply compare to the circulating supply?
• How will the supply change over time? (Distribution schedule, covered later)
• How will supply changes affect the token price?

The key here is to consider if the value the protocol gains over the time that tokens are released is likely to outweigh the price pressure caused by tokens being released. For example, if you think a project is likely to grow by 10x in the next year, and the circulating supply will 3x over that time period, it would still be considered good value at this time. 

Looking at the other side of this, if you think a project is only likely to grow by 50% in a year, and the circulating supply will increase by 40%, that would be a much worse investment than the example above.

Market cap:

Market cap is the total dollar value of all coins in circulation. A crypto’s market cap is calculated by multiplying the circulating supply by the token’s price. The market cap of a crypto is far more important than the token’s $ price, as the price doesn’t actually tell you what a project is valued at. It offers an indication of how valuable a crypto is, as well as its growth potential. 

• What is the crypto’s market cap? 
• Is it a relatively small or large market cap in comparison to what it is worth, including growth prospects? 

It’s much easier to get massive returns from small market cap coins, as there is significantly more room to grow. However, a crypto with a smaller market cap is a riskier investment, as it’s much more likely to go to 0 than a crypto with a larger market cap. 

Fully diluted valuation:

The fully diluted value (FDV) is the theoretical market cap of the crypto, if all tokens were in circulation. This is calculated by multiplying the crypto’s current price by the maximum supply of tokens. 

Note how the token’s market cap compares to the fully diluted value. If there is a significant difference between a token’s market cap and fully diluted value, it means there are still a large number of tokens waiting to be released into the market, which could be a red flag.

• What would the theoretical market cap be if all tokens were in circulation? 
• Is there a significant difference between the token’s market cap and its fully diluted valuation? (Is there still a large amount of tokens to enter the market?)
•  If there is, is this likely to cause issues? 
• How are the remaining tokens going to be released, and when? See distribution below…

This is vital for obvious reasons, especially when combined with distribution (considering when and how the tokens will be released). If you intend to hold a token long-term, and the fully diluted value will likely be reached over that period, it is better to ignore the market cap and go by the fully diluted value.

Resources:

• Coingecko & CoinMarketCap (useful resource for checking a crypto’s supply, trading volume, market cap, fully diluted value, price, and where you can buy it), 
• Projects websites & documents - these should have sections for tokenomics.
• Block Explorers e.g Etherscan, BSCscan, SOLscan, and Arbiscan- for others, simply search the blockchains name and “block explorer”. These are useful to see the distribution of tokens and the maximum supply, holders, price and fully diluted value. Find the token address on the project docs or Coingecko and Coinmarketcap and search it in the relevant block explorer.

2. Distribution

The rate of the release of a token, as well as where and to who it is distributed, affects its value and reputation- read more.

Note if a few investors, or team members, hold a large amount of the tokens, as this adds a high potential risk. They could have excessive influence over governance or manipulate the token’s price by pumping and dumping to suit them. 

A good distribution design is when no individual or group holds a large percentage of tokens. Instead, it should be distributed among many, with a focus on community allocation. The distribution of tokens to the community incentivizes users to follow the protocol. 

Note how many tokens are available to both private and public investors. Find out which wallets are holding large amounts of the tokens, and if they could be sold if the price were to rise dramatically. 

Remember that the rate at which tokens are distributed also matters, so consider the Fully Diluted Value or FDV (the crypto’s theoretical market cap if all tokens were in circulation), as well as the supply and market capitalisation in combination with the distribution. There’s a big difference between a token whose supply is growing by 5X in 5 months and one that’s growing by 5X over 5 years. 

Tokens may also be locked up for a period of time, during which they cannot be transacted or traded. This refers to the ‘vesting schedule.’ A good vesting schedule helps to increase the confidence of token holders as it means that the market won’t be overwhelmed by a mass release of tokens allocated to the team or private investors. 

• Who gets how many tokens at launch?
• How were tokens distributed (fair launch, pre-mine, ICO, IEO etc)?
• How many tokens are allocated to team members?
• How fair does the distribution seem? 
• Do a few wallets hold most of the tokens? 
• How much of the supply can the community get hold of?
• How and when will new tokens be released?
• When will locked-up tokens be released? (What is the vesting schedule?) Will a lot of locked-up tokens be released at once?
• When are private investors unlocking?

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Resources: 

Check the project documents (tokenomics section) and information you can find through Google searches (be wary and cross-check sources). 

3. Inflationary or deflationary?

Crypto is either inflationary or deflationary. 

Inflation can reduce the value of tokens over time, but, if done right, can add huge value by attracting interest and liquidity, turbocharging growth. 

Deflation can increase the value of tokens over time, as there are fewer tokens, each one is worth more This is why deflationary tokens can be so valuable. However, it does also add risk factors, as it is very complex to get right, and if done wrong, could ruin a protocol, we must consider how, why, and when those tokens are being burnt- read more.

• Is the token inflationary or deflationary?
• What is the inflation rate, and where are the emissions (new tokens) going?
• Is the inflation rate due to reduce over time? This could mean the protocol is effectively bootstrapping liquidity in the early stages.
• Are there plans for it to be deflationary? If so, what are they and how will it work?
• Are there plans to stop emissions at a set point? What will happen after that? Will there be incentives for people to continue using the platform?

Resources: 

Project documents and google searches, plus checking places like Duna Analytics

4. Utility

Utility is often also referred to as the use-case of the token. When looking at utility, consider the question: Why would you hold this token? The answer may be revenue sharing, staking, governance etc- read more.

A token needs to have a good purpose to exist and for people to want to hold it. 

Revenue sharing means token holders earn a percentage of the token’s revenue. If a token has built-in rewards and revenue through staking or other forms, it’s easier to justify investing in it. 

Governance means token holders have a say in decisions and the project’s direction. Governance tokens enable the distribution of power across an entire community. 

Note that ‘utility tokens’ and ‘token utility’ are not the same thing. Token utility is the umbrella term for what a token does, a utility token is one of those use cases. Utility tokens can be good investments as long as they have clearly valuable utility. 

• What is the token’s purpose?  
• What is its utility? What does it do?
• Is it a utility token?
• Is it governance (meaning is it used to decide what happens to the protocol)?
• Is it revenue sharing?
• What gives this token value as an investment?
• Does the token have built-in rewards?

Resources: 

Project documents. 

Things to note

Rug pulls

Another thing to be aware of is rug pulls. A rug pull is a type of crypto scam where developers pretend they are building something, then abandon the project, sell their tokens and run away. 

Often rug pulls may not even be intentionally malicious, just overly eager developers and teams that believe they can do more than they can, resulting in a ‘slow rug’ (when the team communicates less and less, until eventually, they abandon the project.) Note that rug pulls are especially prevalent in NFTs.

A token may be considered “unruggable" if there aren’t a considerable amount of team-held tokens that could be taken out in a rug pull, or if the team renounces ownership of tokens. 

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make, and only you are accountable for the results.