What is DYOR? 

• DYOR, or "do your own research," is a term coined by cryptocurrency users to encourage others to perform due diligence and make better-informed trading decisions.

• DYOR involves understanding a project's basics, evaluating qualitative and quantitative factors, reviewing key documents, assessing the team and technology, and analyzing market and community support.

• DYOR should be an ongoing effort, where traders regularly review their investments and stay informed about market changes.

DYOR, an acronym for "do your own research," is a fundamental principle in the cryptocurrency community.

Seasoned cryptocurrency users frequently emphasize this term to remind others of the importance of conducting thorough due diligence before investing in any digital asset.

The cryptocurrency industry’s rapid growth and potential for financial returns has made it a magnet for bad actors and scammers.

These individuals often make extravagant promises, claiming to have insider knowledge about the "next big crypto project" that will yield extraordinary returns with minimal effort. Such schemes are designed to exploit the naivety and greed of unsuspecting investors.

In this context, DYOR is more than just a casual piece of advice; it is an important warning.

Prospective investors are urged to pause and critically assess the fundamental aspects of any cryptocurrency project they are considering. This can involve examining several key documents, channels, and individuals to identify whether a project is a worthwhile investment.

For more information, check out our Kraken Learn Center guide on Crypto scams, hacks and fraud.

The ability to properly assess any type of investment is invaluable. However, in the cryptocurrency market, the stakes are particularly high.

The barriers to creating tokens are incredibly low, allowing both malicious and incompetent actors to easily launch projects that may harbor significant flaws. These flaws can range from technical vulnerabilities that put investor funds at risk to outright scams known as "rug pulls," where project creators disappear with investors' money.

Given this environment, approaching each investment decision with a robust analytical framework is essential. By rigorously analyzing key aspects, investors may identify red flags that signal dubious projects.

You can learn more about rug pulls in our Kraken Learn Center article, How to stay safe in DeFi.

Rigorous due diligence takes into account a number of qualitative and quantitative factors.

Crucially, no single factor should be taken as an indicator of a crypto projects viability. Rather, investors should aim to weigh up several fundamental areas to create a more informed profile of the asset in question.

Understand the basics

It can be very difficult to properly vet a crypto project without a technical understanding of blockchains and digital tokens.

Fortunately, the Kraken Learn Center has all the key areas covered:

• What is blockchain technology?

• What are smart contracts?

• What is a blockchain consensus mechanism?

• Types of cryptocurrency

• Crypto coins and tokens: what’s the difference?

• What are cryptocurrency tokenomics?

The above articles offer a good starting point for those unfamiliar with the space, but further learning is often recommended to develop a deeper familiarity with the subject matter.

Within the crypto space, there are numerous ‘sub-categories’ of coins and tokens that require knowledge of additional fundamentals (e.g., if you’re looking into DeFi-related assets, an understanding of liquidity pools, yield farming and wrapped tokens is a must).

On the quantitative side, metrics such as market capitalization, circulating/total supply, and liquidity will form part of an informed decision.

Get to know the cryptocurrency

The first step in DYORing a given project is to understand its purpose and use case(s). These can be aggregated from a variety of sources:

• The project’s website
• The community channels (X, Discord, Telegram)
• The documentation (Github repositories, roadmap)

There’s perhaps no single better source, however, than the project’s whitepaper: an in-depth document that, if written correctly, should clearly outline the use case, how the tech stack addresses the identified problem, and the cryptocurrency’s role within this system.

Potential red flags may include:

• No real product-market fit.
• No need for a cryptocurrency.
• Absurd claims or promises.
• Grammatical errors, typos or plagiarism.

Meet the team

Founders and team members may be a reliable indicator as to a project’s success and long-term viability. Investors may want to identify these key players and take note of their previous experience, reputation and credentials. Are they well-respected in the crypto or tech spaces? Have they launched successful projects in the past?

Be wary of trusting individuals too much: a strong reputation does not guarantee the sustainability of their project.

Additionally, it’s worth noting the prevalence of anonymous (anon) teams, where team members operate under a pseudonym that isn’t tied to their real identity. While this isn’t necessarily a red flag (after all, Bitcoin’s Satoshi Nakamoto was a pseudonym), it does present the risk that team members could simply disappear without any reputational damage or recourse for holders.

Examine the technology

A good project is one that solves a real problem in a way that previous solutions couldn’t.

Again, whitepapers and developer documentation are a good source of information on this. If these are too technical, it’s recommended that prospective investors learn about them from alternative sources (e.g., by asking ChatGPT to break it down, or by studying materials written by others).

GitHub activity may be a good indicator of a team’s execution. A project with regular commits may suggest a highly active team, though this metric isn’t foolproof — these commits could be low-effort, meaningless updates designed to pad activity. As always, investors should cross-reference their findings against other factors.

Finally, if the project has been around for some time, review previous blog posts and roadmaps: has the team consistently delivered on their promises within the given timeframes? Have advertised features or upgrades been integrated on schedule?

Explore the market

Higher market capitalizations and trading volumes are typically indicative of popular, established cryptocurrencies.

Consider also the relationship between the total supply and circulating supply: due to future emissions (unlocks, staking rewards, mining), the market cap can be misleading, as it only applies to circulating tokens. Some choose to cross-reference it against the fully diluted valuation (or FDV), which takes into account all future tokens.

In this particular category, much of the technical analysis toolkit used by traders may aid in assessing a given crypto: taking a close look at past price performance, historical trends and a range of other indicators may provide some insight into potential future performance.

Take note of the community and adoption

Community is an important factor when it comes to small-cap coins and tokens. An active user base might indicate strong support for the project and its future growth — an additional byproduct is that these users may act as a proxy marketing team. However, be aware of hype or astroturfing from fake accounts.

In the same vein, adoption should be considered — is the token/coin being added to businesses, decentralized applications or other platforms? Is the user base growing, based on metrics like new addresses or number of followers, etc.?

Identify the competitors

A project could tick all the boxes, but if a better alternative exists, it may never take off.

An integral aspect of any due diligence effort is a competitive analysis — finding out what other cryptocurrencies exist within the niche, and assessing their strengths using a similar methodology to the one outlined in this article.

It may help at this stage to identify competitors’ points of differentiation, and their pros/cons. Does the project of interest surpass them in key functionality, tokenomics, roadmap or adoption?

The ability to assess an asset across a range of qualitative and quantitative factors is an essential skill for crypto traders. It’s important, however, to understand its limitations:

DYOR is an ongoing effort

Crypto moves fast. A strong project today might be abandoned, hacked, or negatively changed tomorrow. Conversely, a weak project may bring in new leadership, revamped tokenomics or positive changes that make it more attractive as a prospective investment.

Crucially, holders should aim to review their crypto investments on a regular basis — e.g., by subscribing to newsletters or joining/following community servers or social media accounts. This way, they can remain abreast of any changes that could impact the cryptocurrency.

DYOR isn’t a guarantee

Unfortunately, strong due diligence isn’t a silver bullet against fraudulent projects or scams. Though it can weed out poorer projects, malicious actors can game their metrics to make their projects appear more viable than they are.

As in all financial decisions, investors should never invest more than they can afford to lose.

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