How to Do Your Own Research (DYOR) on DeFi Projects

How to Do Your Own Research (DYOR) on DeFi Projects

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January 14, 2022

When your niece asks if you partake in DeFi platforms, it's probably time to catch up with new avenues of investment, namely, in decentralized finance.

Just because you have been mercilessly spammed with information about a crypto investment should not be reason enough to undertake it. However, the initial knee-jerk reaction that many people have to this sort of crypto exposure has a solution. Like any investment, crypto requires a phase of analysis and research before making a decision.

The DeFi ecosystem, inflated with novelty and hype, is crowded with crypto projects whose funky names and logos can be sometimes mistaken for projects with strong investment prospects if not properly assessed.

But before assessing the potential of DeFi or crypto projects, you should start by asking yourself What are your motives? What are your biases? And then try to identify the mental traps you’re most prone to fall into. 

A good place to find answers and high-quality information is our wallet, and its Pillar Stories – dedicated to providing users with content that is curated to inform their decisions with trustworthy sources.

As a rule of thumb: kill the hype, gain insight.

Find Your General Drive

Beyond having an electrifying logo, a DeFi platform should catch your attention for other reasons, too.

  • Expected profit. Is financial gain what drives you the most? Or perhaps you are more attracted to utility tokens over those providing merely a means of exchange for value.
  • Fundamentals. If you consider social interests and ethical ideas to be fundamental to a project, then you should look for these principles to inspire you.
  • Technical innovation. A significant technological leap may awaken your interest in a project. For example, you may be more in favor of DeFi projects on Polygon rather than your niece’s preference for Binance Smart Chain for its features and characteristics.
  • Risk affinity/aversion. This is probably the most difficult point to assess. Risks can be external, internal, avoidable, acceptable, unbearable, or even imaginary. Intuition plays a very important role here, no matter the tools available to assess situations. Assess carefully. 

And again, what you have probably read in many other posts: do not invest what you cannot afford to lose.

What Is Behind a DeFi / Crypto Project

Once you know your biases, dos, and don’ts, then you can dive into finding projects that match your criteria. In this step, you are advised to get to know the organization and the people involved and assess how reliable they seem to you—and how it feeds your intuition.

Among the questions you should ask yourself are:

  • Based on reliable sources, do the projects’ leaders seem capable and aboveboard?
  • Is there a strong proof of concept or team of credible advisors, partnerships, and grants that are renowned for their skills and success? In other words, are there signs this project will be a success run by superstars?
  • Are the organization’s goals realistic within the stated time frame? Does the crypto/DeFi platform promise more than it delivers?
  • Do the leaders of the project often communicate contradictory messages on the project’s goals and plans?
  • Does the project truly represent the ideals of decentralized finance? For example, does the founding team still hold administrative keys for important contracts? Is it open-source?
  • Are the rules to participate in the project often changed without notice?
  • Are there ample opportunities for community members to get involved, such as participating in governance, testing new software, creating content, and helping with community management?

There are more tools and methods that can help inform your criteria before investing in a project. We will continue to disclose them in future articles, so stay tuned and up to date with Pillar.

And don’t forget to download your Pillar wallet to learn where to invest.