Do your own research, or DYOR, as it is popularized by crypto enthusiasts, is a common phrase used in the crypto investment and trading sphere. The idea of this term is to reduce the number of uninformed investors by encouraging users not to blindly follow someone else's words. Any new projects or areas of interest should be subjected to a significant amount of research before being considered for investment.
Investors can explore various important areas when researching the project. Team members, their track records and biography, project roadmap, previous successes and failures, and community engagement are all important starting areas for study. It is good practice to cross-compare relevant information from several authoritative sources. A thorough study helps to assess the validity and potential of the project before investing, so let's take a closer look at some key criteria by which you can evaluate crypto projects.
It is important to note that even the strictest DYOR is not a remedy for all ills. Due to the volatility of cryptocurrency markets, doing your own research does not eliminate the risk of unsuccessful investments; it can only help assess the likelihood of project success and better understand the level of risk.
Why is There a Need for DYOR in Crypto?
The main reason for conducting research is the practice of responsible trade and disciplined thinking to minimize risk. Investing a large amount of money in a product without knowing anything about it would be akin to gambling. Let's look at some of the main reasons why investors are encouraged to conduct their own studies.
Conduct Study to Assess Risks
DYOR allows people to reduce the risks of irrational decision-making when investing in cryptocurrencies. Here we look at several areas in which careful research can help avoid failed investments. For example, market sentiment may force traders to invest in an asset due to FOMO (fear of missing out). When the market goes up, some investors may fall under the hype of buying based on fear of missing an opportunity. Without careful research, investors are likely to suffer financial losses after buying assets at high prices.
Similarly, when there is a FUD (fear, uncertainty, and doubt), investors can panic sell based on the influence of commentators and investors on social media. The so-called "Weak hands" tend to panic when the market begins to fall, and the negativity in the community intensifies. Without proper scrutiny, investors are more likely to sell their assets at a loss when they fall under the influence of negative market sentiment.
In addition, some tactics used by unscrupulous players in the cryptographic space are aimed at deceiving inexperienced investors — or those who have not conducted high-quality research.
Sybil Attack is an attempt by attackers to harm the network using fake requests or accounts. This type of attack can be applied to several areas of cryptocurrencies, but in this example, we will focus on how it can affect investor decisions.
Fraudsters can create multiple social media accounts to discuss a project or asset. They try to inflate the project by creating the illusion of community participation and initiating discussions with real users of social networks. Then the discussion is supported by an additional group of accounts on social networks under the control of the attacker. This may give the false impression that many people are delighted with the project. If a potential investor has not conducted a thorough study of the fundamental part of the project that is progressing in this way, he may be persuaded to invest in an asset that has no real value.
To increase product awareness, hype and discussion, some projects use various methods of "shilling" their digital assets. Many project managers resort to deliberately inflating or advertising the project through social networks and community channels.
Projects or assets that wish to be promoted can sometimes attract well-known bloggers and reputable personalities to use their platform and promote the project among their audience. Receptive traders can be attracted by hype, especially since the shilling is often presented as a real recommendation from people they are following.
Usually, it doesn't look like advertising or promotion and can be quite native. For example, such a promotion may be inserted as part of a discussion or product overview. Investors who rely on the opinion of an influencer, and not on their own research, can be persuaded to buy a dubious asset.
DYOR reminds everyone that investment is only as good as the study is, and even then there is no guarantee of success. Risks represent the natural price of capital gains offered by investment activities. The best thing investors can do is arm themselves with sufficient knowledge and research to help make effective decisions and reduce risks.
How to Study Cryptocurrency? Popular DYOR Methods
Now that we've figured out why DYOR is important, let's look at some of the techniques traders and investors use to do the right research.
- Fundamental analysis
- Analysis of the project whitepaper and fact-checking crypto
- Studying the numbers, opinions, and crypto news sources
- Hiring a professional financial adviser
Conducting your own study is a deep dive into the project. This is closely related to fundamental analysis (FA), a term used in the financial world to determine the internal value of an asset or business. In traditional financial markets, FA is often used to analyze potential investment opportunities, along with other approaches to market analysis, such as technical analysis (TA) and market sentiment analysis.
Analysis of the Project Whitepaper
A good habit for traders and investors is to refer directly to the source of information and read the white paper of the project, concept paper, website, and other marketing materials.
A whitepaper is an authoritative document, usually written by a project team to pose a problem and explain how their product, technology, or token can solve it. Anyone can use these sources to carefully assess the project creators’ mission, vision, and plan. What problem are they trying to overcome? Does the real problem affect a large number of people? Is the proposed solution feasible?
If the vision sounds too complicated, and no clear path is offered to achieve it, it may be a sign of an overly ambitious project that is likely to fail to deliver on its promises.
Examine the Numbers
The numbers surrounding the project and its digital asset can give investors a lot of information. For example, the number of social networks and community channels of a project may be a good indicator of its popularity. Nevertheless, beware of bots and fake accounts, as they can create an inaccurate impression of how other people perceive the project and its products. How involved is the community? Is communication active and natural? There are tools to check whether the number of subscribers to the account on social networks is true.
The price of the asset, market capitalization, negotiable offer, general offer, daily active users, distribution of token holders, and 24-hour trading volume can all give more information. By examining these figures, you will be able to estimate the activity of other investors and users over time. You can also combine them with elements such as roadmap stages and marketing plans to get a broader perspective.
Many projects publish detailed information about their tokenomics at launch. They can describe how project tokens will be distributed and what incentives exist to encourage community activity. Tokenomics can also contain interesting details such as founder and team attachments.
Most blockchains record all transactions in the public domain, and anyone can view them using blockchain observers. Blockchain data aggregators such as Glassnode and IntoTheBlock can also help you get more information about asset metrics.
Find Authoritative Sources
Many cryptocurrency sources in the media are fighting for attention. When you rely on such channels for comments and context, learning about these channels can be as useful as researching the project itself. Where do they get their experience from? How authoritative are they? Is information objective and impartial?
Hire a Professional Financial Adviser
Some people hire professionals to conduct market analysis and project research. While this outsourcing method can help save time and effort, you should consider what you risk by instructing a third party to conduct a comprehensive review for you.
The cryptocurrency market can be extremely unstable, so it is important to remember that no amount of research can guarantee successful investments. To reduce risk, investors can arm themselves with knowledge of a project in which they want to invest. There is a lot to learn in the cryptocurrency market; the more investors improve their knowledge, the better it will help them make smart decisions.