How to Estimate The Long-Term Potential of A Token?

Evaluating the value of a token in years to come demands various approaches. It must tick many boxes to remain a serial winner and survive the ups and downs of multiple cycles. The entire project must have motivation, adequate answers about solutions, and details on how it intends to keep the dream alive.

It doesn’t mean a team behind a token has all the answers from scratch. However, there are qualities you should keep an eye out for in a token. These factors include accountability to their community, diverse expertise at the helm, and tangible use cases. Seeing these positives, you can vouch for the long-term potential of a token.

In this article, we will identify the various aspects you should analyze to determine the long-term potential of a token.

Let’s dive in!

Indications of the long-term potential of a token

Whitepaper

Every day, a new coin is launched on the blockchain, promising to be the best thing since Bitcoin. The marketing is always top-notch, dishing colorful videos and glowing speeches. However, to understand the token and its technicalities, you need to read the whitepaper.

A whitepaper is a project pitch to potential investors and users. This documentation summarizes a crypto project. It presents the reasoning and fine details like the roadmap, funding, and team. However, many investors neglect this treasure trove of information. They think it is too complex and express shock when plans begin to manifest.
How can you properly analyze a white paper, picking key bits along the way?

Every white paper begins with a problem. This section must present a problem and state how the project intends to address it. Under utility, the project brings its solution to life. It shows readers how they will operate differently from competitors to offer superior solutions.

However, you must be careful not to get carried away by unnecessary horn-tooting. A project that doesn’t outline ways to turn things around is likely dead on arrival. The $DFIX whitepaper is an example that highlights the proper structure of a whitepaper

Then comes the architecture. This explains the consensus mechanism, the reasons for hosting the project on the blockchain, and the choice of chain. By the end of this section, you should know where your heart lies. Do they seem to know their onions? Move on to token distro and team segments to clear any doubt.

The overall outlook of a project is good when the whitepaper;

• Is easy to find
• Has little to no grammatical errors
• Gives clarity to readers
• Contains verifiable references
• Doesn’t sell pipe dreams

Tangible use-cases

A specific use case keeps your investment from dying prematurely. The long-term potential of a token is evidenced when the underlying project attracts traffic for established reasons.

Here are some examples;

• Ethereum’s smart contract
  Smart contracts are automated Solidity programs on the Ethereum blockchain. They execute on predetermined conditions without manual triggers. A smart contract states that if A occurs, B follows. This simulation aids transactions and prevents interference from third parties. These programs are transparent and tamper-proof.
• Base for NFTs
  Before now, NFTs were unfriendly territory for the underfunded. This is not the case anymore. Base brings democracy to NFTs with low costs, developer-friendly tools, and improved user experience. Using OP Stack and danksharding, Base is churning out affordable NFT minting and trading. The Layer 2 blockchain has collaborated with Niftykit to create no-code NFTs, attracting more people to the sector. Base intends to bring a billion users to Web3 and ranks among the top chains for NFTs.

Tokenomics

Tokenomics is the engine house of crypto projects. With utility comes an exchange of services, and the standard is a token. At launch, this concept dictates price, but this relationship changes as other factors come into play.
Under tokenomics, there is much to familiarize yourself with, including;

Token Supply

A token’s supply has three dimensions: total, circulating, and maximum. The total supply sums up token creation, including burned tokens. Circulating supply refers to issued tokens that remain fluid, while maximum supply indicates the highest amount of a token that can be issued, ever.

For many tokens, the maximum supply is infinity. These tokens are also known as inflationary tokens. Bitcoin has a supply capped at 21 million. This deflationary mechanism makes Bitcoin highly sought after in nations with weak currencies.
The best tokens are those with a maximum supply or moderate inflation. Once demand matches or exceeds the inflation rate, you can bank on such tokens for long-term speculation.

Token distribution and allocation

When a project takes off, it assigns initial liquidity to various categories of people. The list usually goes like this;

1. Public sale
2. Community
3. Insiders: This group includes those with personal interests, including the team
4. Foundations and Treasuries

You can find the token allocation in the whitepaper, and the absence of this breakdown is a red flag. A green light to invest is a fair distribution, especially between the community and founders. If insiders hold an overwhelming share of allocation, it can allow privileged trading and market manipulation, and investors will hold on to bags of dust.

Market capitalization

Market capitalization refers to the total dollar funding in a project. It is a product of the current market price and the circulating supply. This value helps market observers and investors to rank projects based on size and popularity. However, news outlets use Fully Diluted Valuation (FDV) when rating a project’s potential. It results from multiplying the current market price by the maximum supply.

A high market cap indicates many people are involved with the token. This sign motivates investors to roll with a project with a solid market presence. Comparing market capitalization with FDV, you can see how increasing supply affects value and predict the long-term potential of a token.

Team and development

A good name can turn things around, even in crypto. A reputable team with enviable track records unwittingly attracts goodwill, traffic, and collaboration. However, a group of people can’t doodle on the belief that past great deeds will create magic. It can only get better. A team owes its project and its token ample visibility. Constant engagement with the community ensures that energy never runs out and the project name stays at everyone’s fingertips.

A comprehensive team has individuals with expertise in legal, finance, marketing, and web development to ensure success and boost user confidence.

Team members can leverage their network to score collaborations. Working together, projects can proliferate and expand their reach with cost efficiency. Another talking point is interoperability. How wonderful is a token applicable in more than one ecosystem? Partnerships build credibility and attract more users.

Conclusion

A token usually exists to fuel an ecosystem. This relationship is the first sign of the long-term potential of a token. Proceed to view the project and token under a fine lens. You can start with the whitepaper, which should be easy to find. This document should clearly state the how, why, and who of the idea.

Also, what is the use case? A token with utility remains valid, as in the cases of Ethereum and Base. Tokenomics is another consideration. The demand and supply of tokens help you to understand the market presence and if your target token is worth holding. A team comprising expansive skill sets and a robust network pushes a project to new heights. The token will progress in similar fashion.

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