How to assess the prospects of a cryptocurrency project based on team capabilities?

Original: 《How to Judge if a Crypto Protocol can Execute its Vision》

Compiled by: Dark Horse Club

"Ideas won't make you rich. The right execution of ideas will." ------Felix Dennis

Your investment strategy has weaknesses.

You invest in a project because you fell in love with the vision. Have you spent enough time considering whether the team can execute that vision?

Theranos had an amazing vision for its "blood testing technology," but it ultimately turned out to be a lie. The same goes for the cryptocurrency space.

Constant delays, accompanied by broken promises. Projects stop updating their GitHub, and communication ceases. You and others in Discord are still holding onto fantasies.

It's easy to hype a project. You should ask yourself: "How can I know if this team can truly execute their vision?"

It's hard.

I have done some angel investing in the past. At least I could meet the founders in person. I could ask them about their plans and understand their knowledge base. I knew that due to legal regulations, they couldn't just disappear with my money.

Crypto is different.

It's like poker and StarCraft—we make tough decisions based on limited information. Teams can hype things up, raise funds, and then disappear with millions.

Reading this article will help you better assess projects based on their execution capabilities.

1. The Challenges of Execution

Running a company is harder than you think. I have run several companies in the past, and sometimes it was hell. YouTubers and "entrepreneurs" on Instagram don't show a true picture.

I remember panicking because I wasn't sure how to pay the next payroll. Or because a decision by Amazon ruined my product, leading to a significant loss in sales.

Crypto is a bloody battleground with no rules. Code and features are easily stolen (copied). Whales are always looking for easy prey. Very few can handle this stage.

Here are some challenges teams face:

1. Lack of Experience.

Experience isn't everything, but it helps. There are now 19-year-olds managing million-dollar protocols. Some of them have never worked before! Most of running a company is people-oriented. Cultivating the emotional intelligence needed for management and communication takes years.

2. Novelty Syndrome.

For a visionary and creative founder, starting new projects is very tempting. But not everyone can run multiple companies like Elon Musk. Therefore, they are not 100% focused on the project you invested in and start to spread their attention.

3. Unstable External Environment.

It's a bit like video games, with new opponents appearing every day: your new feature gets copied, your partner gets poached, the coin price drops, etc., even the Russian invasion of Ukraine, with everyone complaining about prices. You must stay vigilant.

4. The Gap Between Founders and CEOs.

Someone might be a Gigabrain developer (with a deep understanding of concepts in the crypto industry) but lacks the ability to run a large company. This is why many founders in Silicon Valley are replaced by more experienced CEOs. Founders/CEOs like Mark Zuckerberg are the exception, not the norm. Research how venture capital firms invest. Ideas are important, but assessing the founder is more crucial.

This is what legendary venture capitalist Paul Graham looks for in founders.

2. What to Look for Before Launch

You're interested in a project, but it hasn't launched yet. While it has the potential for the highest returns, it also comes with the highest risks. Here are some clues to see if this team has the capability:

1. What has the team achieved?

Research the founders and see what they have accomplished before. Here's an impressive example:

The image below is of Stephen Tse from Harmony One, who has a PhD in cryptography from UPENN. He has worked at Google and Apple. He founded a company and sold it to Apple.

Does this guarantee that Stephen will succeed in the cryptocurrency space? No, but it gives him more favorable opportunities. This is why some of us get so excited when we see "former Google members on the team."

It's easy to assess a public founder. What happens if the team and founders are anonymous?

I want to see if these anonymous teams have launched any projects before.

I like Hundred.Finance. Even though vFat is anonymous, he and his team have a track record of developing vFat tools.

2. Audits.

Most projects should undergo audits before launching. Go read the reports: Are there any red flags? Has the team addressed and fixed these issues?

3. Who else is investing?

It's easy to hate on professionals; after all, they get in earlier than you and have developed a habit of selling off. But venture capital firms have a significant advantage—they can do due diligence that you can't.

I invested in Platypus.finance when it first launched. I didn't know who the founder Duckbill was, but Avalabs did fund them. This gave me confidence that the founders and team were qualified.

4. Check the documentation/code/website.

You can tell how you do one thing by how you do everything. So, does the project seem to be all copy-paste work? Are there typos everywhere?

5. Do they clearly communicate their vision?

The roadmap indicates the responsibilities they are willing to take on. It also gives me clues about how they think strategically.

3. What to Look for After Launch

Once the protocol launches, we start to get more clues about how the team is delivering.

1. Is the team delivering as they said they would?

Did they meet their milestone goals? This way, it looks like they are executing firmly according to the roadmap.

2. What is the quality of the work?

The team has delivered features. Are there any bugs? At the beginning of 2021, I was a loyal fan of Pancakeswap. But later I cleared my position because the "prediction" and "lottery" features were worse than a McDonald's ice cream machine.

Pancakeswap forked code from Uniswap. "Prediction" and "lottery" were their first unique features. I saw they couldn't execute these simple functions, which made me lose confidence in the project.

Expectations vs. Reality ------ Seller's Show vs. Buyer's Show

3. How do they handle setbacks?

It's normal for problems to arise in the DeFi world. For me, what's important is how the team responds to them.

Does the team have control? Is there a clear plan moving forward? Or do they just blame "FUD," thinking of themselves as victims?

What I want to see is professionalism, not emotional reactions.

4. Transparency.

Sometimes they remain silent, saying they are busy building (the project team is working). Writing a tweet only takes a few minutes. Maybe they are off messing around on the beaches of Bora Bora with your money.

5. How do the founders spend their time?

Some people can't handle success. Imagine what it feels like to be thrust into the spotlight. You now have more money than you ever dreamed of, and a group of people worshipping you.

I often see this happen in e-commerce. After reaching an initial level of success, they don't continue building but want to enjoy the fruits of their labor.

Enjoying vacations becomes more important than running the project. Or the founders prefer making YouTube videos over building.

6. Keep Moving Forward.

Key turning points emerge. When a team changes strategies every few weeks, it should be a red flag. They are trying to show others a (less credible) viewpoint, hoping others will believe it.

Here are some clues of a failing project. Go examine the projects you invested in and see if you can spot any warning signs.

Here are some clues:

• Constant delays in building the website.
• Users being banned for criticism.
• Everything is labeled as FUD (spreading negative news causing investors to feel fear and uncertainty, trying to influence the market).
• GITHUB has stopped updating.
• Emotional reactions from the founders.
• Unprofessional tweets about female founders.

4. Becoming a Better Executor

I know some project teams and founders are reading this article. I don't have all the answers, but here are some things that have been useful to me.

1. Hire the right people.

Don't try to do everything yourself. You don't have the time. Learn to trust and manage people, with the right advisors and team members.

2. Implement a management framework.

Think of them as the operating system for running a company. For example: [OKR's], [Traction], and [Scaling Up].

3. Be Honest.

You will make mistakes at times. As long as you are honest, people will be more forgiving than you think. You should be transparent with your investors. The first step to getting out of the hole is to stop digging (the first step to getting out of trouble is to stop lying and hiding).

4. Numbers Don’t Lie.

Every goal should have a key measurable standard that lets you know if you're on the right track. How do you measure growth? TVL amount. How do you measure adoption? Daily active users.

5. Set Priorities.

You can't accomplish everything you want. It's a bit like playing chess. You can have multiple options, but you must find the best course of action.

5. Execution is a Skill You Can Improve

Cryptocurrency evangelists often emphasize their victories. What about their losses?

My "reputation" comes from reporting on the "Wonderland" project. When Sifu's identity was exposed, I exited. I spent a lot of time reflecting on this investment and trying to learn from it.

This project attracted me for two reasons:

1. I fell in love with the vision.

   I have seen how well investment firms like a16z and Blackrock have done. So, seeing "mechanism rebalancing + high mining yields + investing in GameFi" made a lot of sense to me.

2. Dani has experience.

   He is one of the hottest developers in DeFi, and Frog Nation hasn't lost (Dani's followers still exist).

If you look at Wonderland through the screening criteria given in this article, what red flags are there in terms of execution?

• The team has never updated the help documentation.

  Wonderland is becoming an investment fund, but the help document refers to it as a token.

• Constant delays. "When airdrop" has become a MEME.
• Paladin's audit issues have never been resolved.

Wonderland's audit results with Paladin Security.

• Constant changes. It feels like everything they do is out of the ordinary.

• Lack of transparency. No roadmap. The treasury has not been audited.

• Dani has a new project every month. There was supposed to be a meme about Solana. He is launching ve(3,3) with Andre. He became a leader of Sushi. All of this is outside of Abracadabra, Popsicle Finance, and Wonderland.

• Communication is poor. The community has asked them to hire a community manager to clear things up. But their response was, "We are trying to minimize expenses to help Frog Nation." That makes no sense when the company is valued at $1 billion.

  My spider sense (acute perception system) failed, and I didn't take action.

  Here are some of the reasons:

• Authority bias. Dani has an amazing track record. Abradacabra has performed well, and Popsicle Finance has recovered with his help.

• Social bias. Everyone in the industry is vouching for Dani. Tetranode works closely with Dani. Andre Croje launched ve(3,3) with Dani. Even the entire Sushiswap community voted to make him a leader.

• Sympathy for bad developers. I have a lot of experiences working with bad developers. Why were things delayed? Slow developers. I can relate to my past.

In hindsight, I made exceptions to my own standards.

It's a bit like dating someone super attractive—you know it's not normal for them to text you ten times a day, but you ignore it because they are too attractive. Next thing you know, you have to file a restraining order because they are a psychopath.

I know it's easy to blame Dani and Sifu for the investment downturn, but that's unproductive. Ask yourself, what can you control? What can you do better?

For me, I am creating a set of standards. Among these standards, there are some principled standards. If a project violates a principled standard, then I exit.

As an investor, you can never be 100% successful. If an investment doesn't succeed, take the time to reflect and understand the lessons.

6. Where to Go from Here

Remember, this is a game of information asymmetry. You must make the best decision you can with the facts you cannot fully understand, and then consider the stakes.

I hope you reconsider your investments. How many have failed due to the team not delivering? In hindsight, did you spot any warning signs or danger signals?