In the previous article, Portal Labs analyzed the common pitfalls of Web3 project investment: from blindly chasing hot spots to overvaluation bubbles to compliance risks, these pitfalls have cost many investors a heavy price. However, relying on luck and speculation is never a solution. If we want to gain a foothold in the Web3 field, we need to establish a scientific screening framework.
In this article, Portal Labs will introduce several mainstream screening dimensions to help you initially establish an identification path for Web3 projects, avoid risks and seize opportunities in the upcoming bull market.
*This article is a bit long, please read it patiently~
Choosing the right Web3 track is the first step to investment success
However, the hot spots in the Web3 market are always changing. Today it may be a certain L2, and tomorrow it may be a certain MEME. Moreover, as a project investment, you have missed the incubation period and it is hard to say whether the project is willing to let you participate. Therefore, Web3 investors cannot chase hot spots, but should plan ahead.
So, the question is: How can I predict the future?
For investors who have just started Web3 or don’t have the energy to fully research it, the simplest and most straightforward way to determine whether or not to invest is to look at the trends of professional investment research institutions. Web3 head investment research institutions such as a16z, Messari, Franklin Templeton, Matrixport, etc. will release the mainstream tracks of Web3 for the coming year at the end of the year, and some will also list representative projects as examples.
Although these are all predictions, we can find common features by comparing them: for example, in the mainstream track of 2024, most predictions point out that AI+ will be one of the hot spots of this year, and according to Coingecko data, the overall market value of the AI+ sector has increased by 2,940%. For another example, in the mainstream track prediction of 2025, almost all reports indicate that AI Agents will be a hot spot next year. And this is the tailwind you can focus on next.
Choose the right business model, make money and live longer
In the Web3 industry, the business model not only determines the viability of a project, but also directly reflects its sustainability. A successful business model must take into account revenue sources, growth mechanisms, and token economic models to form a complete profit closed loop.
Source of income: The ability to make money determines the lifeline of the project
The source of income is an important indicator to measure the stability of a project. Only when a project is profitable can it expand its services and users and form a positive cycle.
For example, Uniswap, through the fee collection model, not only guarantees cash flow, but also forms a self-reinforcing business closed loop. Uniswap's AMM (automatic market maker) model solves the liquidity problem, while attracting a large number of trading users, and maintaining revenue growth in the face of market fluctuations.
On the other hand, some projects that rely solely on token appreciation to attract speculators often lack actual business support. Once the market heat drops or the token price collapses, the capital chain will soon break.
Growth mechanism: short-term incentives and long-term needs are equally important
User growth and retention mechanisms determine the market competitiveness of a project. In the early stages of Web3 projects, they often relied on token incentives (such as airdrops) to attract users. This strategy can quickly bring in traffic, but long-term development still requires solving user stickiness and demand issues.
Aave is a typical success story. It attracts users to deposit assets through liquidity mining and loan mechanisms, while providing lending services to support the platform's locked-in volume and activity. In addition, Aave further increases user usage through the flash loan function, gradually shifting from incentive-driven to actual demand-driven, forming a long-term growth logic.
Token economic model: design determines ecological stability
The token economic model is the core architecture of the Web3 project, which directly affects the token price, market sentiment and investment returns. Reasonable token issuance and lock-up mechanism can control the circulation supply, reduce price fluctuations and form a virtuous circle.
Here we have to mention BTC. The four-year halving model designed by Satoshi Nakamoto has a great impact on the price of BTC every time. According to the price chart, there will be an increase a few months before each halving, followed by a correction and a rapid surge after half a year. The halving event in 2024 also conforms to this rule.
Choose the right Web3 team and gain trust from their background
The team is the soul of the Web3 project, and determines the starting point and growth potential of the project. In the technology-driven crypto industry, the qualifications, technical capabilities, and resource network of the founding team not only affect the stability and development speed of the project, but also directly determine the market's trust in the project. However, trust is not innate, but needs to be verified through specific analysis.
Professional background: Resume determines credibility
Excellent Web3 teams usually have cross-disciplinary professional backgrounds, especially in blockchain development, financial markets or product design. For example, there are two similar L2 projects. One team has well-known early Ethereum developers who have contributed code on Github for a long time; the other team has members who are unknown newcomers. Which one would you prefer to invest in? Most projects will choose the former.
As the saying goes, knowing yourself and your enemy ensures victory in a hundred battles, and the same is true in the investment field.
Technical strength: code is the best proof
Web3 itself is code is law, so the ability to implement technology is the core indicator to test the strength of the team.
A team that is truly focused on development will not only update the code regularly, but also maintain community activity to attract developers to participate and contribute. In the early days before Filecoin was launched, its github was extremely active, and both the official team and the "extra" team (many non-official technical personnel also participated in development and testing) updated the code base at a high frequency for a long time.
On the contrary, because Web3 advocates open source sharing, some projects in recent years have quickly launched new projects to "raise money" by copying the underlying code architecture. This practice is often criticized by Web3 users, and most of them are quick to cut leeks.
Consulting resources and partners: amplifiers of endorsement and trust
In addition to the founding team and development strength, consultant resources and partners are also important factors in measuring the credibility of the team. Investment from top VCs or the participation of well-known consultants often means that the project has been recognized by professional institutions, and it also brings more market resources to the project. For example, the projects invested by a16z are not only well-funded, but also receive marketing and industry expansion support. Polygon is an example of a company that has risen through resource integration. In the early days, Polygon received strategic investment from Binance Labs and Coinbase Ventures, which not only increased market exposure, but also attracted more developers to join the ecological construction.
Choose compliant projects, only by walking steadily can you go far
The Web3 industry is gradually saying goodbye to the stage of "wild growth". The global regulatory environment is becoming increasingly tight, and compliance has become the life and death line of project development. Whether it is financing, market expansion, or user trust, compliance is the key to determining whether a project can operate in the long run. However, in a rapidly changing market, how to judge whether a project is truly compliant?
Licensing and legal compliance: the first step to market trust
Licensing and legal compliance are the basic standards for compliance review and also a hard threshold. Obtaining a license not only means that the project has passed regulatory review, but also directly enhances market trust and institutional attention. For example, HashKey Exchange has become a model of compliant trading platforms by relying on the Hong Kong virtual asset trading license. After obtaining the license, it attracted a large number of institutional cooperation, as well as a large number of users and funds, and became one of the top ten centralized exchanges in the world.
Place of registration and operating policies: the importance of policy friendliness
The place of registration of a project determines the regulatory environment in which it is located, and the regulatory policies in different regions vary greatly. Regions such as Hong Kong, the United States, and Singapore have established relatively mature virtual asset regulatory frameworks, and Web3 projects operating in these regions are more likely to obtain compliance support. In contrast, although some legal gray areas are subject to loose regulation in the short term, they may fall into trouble at any time due to policy changes. For example, China's comprehensive ban on cryptocurrency transactions in 2021 forced a large number of projects and miners to relocate, and the market was once in turmoil. The same situation occurred in Indonesia in 2023. After its policies were tightened, many Web3 startups were forced to suspend operations.
Token issuance and financing compliance: Avoid illegal fundraising traps
Compliance is not only reflected in the operating qualifications, but also in the token issuance and financing process. We all know that in China, tokens cannot be issued or ICOs can be conducted; in the United States, the issuance of tokens also needs to pay attention to the difference between securities and commodities, and the financing method will also determine the attributes of the tokens. For example, BitConnect attracted investors through the Ponzi model, but was sued by the US SEC in 2018 for illegal securities issuance, which ultimately led to heavy losses for investors. In addition, a transparent token issuance process and KYC/AML (anti-money laundering) standard compliance operations can significantly reduce the risks of illegal fundraising and market manipulation.
Cross-border compliance: challenges brought by globalization and policy differences
Web3 projects often operate across multiple countries, which also brings challenges to cross-border compliance. For example, the US SEC has a stricter definition of "security tokens", while Europe's MiCA (Markets in Crypto-Assets Act) is more inclined to standardize the token trading market. This means that projects need to comply with the legal requirements of different jurisdictions at the same time to ensure compliance with international operations.
It is precisely because of the different compliance requirements of different countries that many Web3 projects choose to apply for licenses in different countries during their establishment. Here we have to mention Binance’s record of applying for licenses in more than a dozen countries.
Investing is a long-term battle, strategy is more important than luck
The Web3 market is never short of opportunities, but opportunities are always accompanied by risks. From short-term hot spots to long-term layouts, from profit models to team backgrounds, from compliant operations to cross-border supervision, every link may become a key variable affecting investment results.
However, it should be noted that the market is changing dynamically, and no set of strategies can be used once and for all. Investing in Web3 is not only a game of technology and capital, but also a contest of information and patience. In the face of a rapidly changing market, investors need to maintain a continuous learning attitude and dynamically adjust strategies to maintain their advantages in the transition between bull and bear markets.
