In this article, we will explore the key aspects that should be examined to identify potential risks and minimize unforeseen issues.

Analysis of owners, teams, and affiliates

A project’s legal and financial stability largely depends on its founders and management team. Therefore, a thorough assessment of these individuals is essential to identify potential risks and ensure compliance with professional standards.

First and foremost, the legal status of the project’s key figures is examined:

• Are any politically exposed persons (PEPs) or individuals under sanctions?
• Do they have any criminal records or ongoing investigations, particularly in finance, money laundering, terrorism financing, or fraud?
• What is their country of origin’s jurisdiction, and what is its international standing?

In addition, the professional background of the team behind the project is evaluated. It is crucial to determine whether they have real experience in the blockchain industry, crypto-economics, and Web3. This includes verifying their presence on professional platforms such as LinkedIn and Behance and assessing their education, employment history, and the success of their previous projects.

Special attention should also be given to the project’s partnerships with other companies. Strong collaborations with large, stable firms that have a solid reputation can indicate a high level of trust in the project. Conversely, associations with questionable companies in the past or present may serve as a warning sign of potential risks.

Technology analysis

The technological foundation of a project determines its security, stability, and scalability. This is why thoroughly examining its blockchain infrastructure is a crucial step in the evaluation process.

As a result of this analysis, a technical report is compiled, which includes:

• An assessment of the reliability and resilience of the chosen blockchain technology, its architecture, and operational specifics.
• A review of security mechanisms, including the level of cryptographic encryption, hashing protocols, and the presence of effective protective tools.
• A smart contract audit to identify potential vulnerabilities and exploitation risks.
• Resilience testing, including simulated hacking attacks, DDoS protection evaluation, and load testing.
• An analysis of development plans, including future updates, potential improvements, and adaptability to changes in regulatory frameworks.

Tokenomics Analysis

Tokenomics is a project’s financial backbone, determining its stability, liquidity, and growth potential. An ineffective token distribution model can lead to price destabilization, speculation, or even the project’s collapse.

The analysis includes an evaluation of key parameters:

• Token distribution schedule – Defines when tokens allocated to the team, investors, and partners become available for sale. A large-scale token unlock at once can cause a price drop due to increased supply.
• Token Generation Event (TGE) – The moment the token first enters the market. If all tokens are released simultaneously, it can lead to high volatility. A more secure approach is a gradual release, which helps regulate the market and stabilize the price.
• Cliff Period – A timeframe during which certain tokens remain locked and cannot be sold. This prevents an immediate sell-off after the TGE, which could otherwise trigger a price crash.
• Circulating Supply – Assesses how many tokens will be in circulation at launch and how their supply will change over time. A limited initial supply can drive up token prices due to high demand.
• Initial Market Capitalization – Determines the project’s starting valuation. If market capitalization is overestimated while the product lacks a developed ecosystem or real-world utility, it may indicate an overvaluation and high risks. Comparing this figure with similar projects in the sector can provide useful insights.
• Fully Diluted Valuation (FDV) – Represents the project’s market value once all tokens are released. The calculation formula is:
• FDV = Token Price × Total Token Supply
• A significantly high FDV compared to the current market capitalization may signal future selling pressure and a potential decline in token value as new tokens are gradually unlocked.

As conclusion

Conducting comprehensive Due Diligence is a crucial step in assessing risks in crypto and blockchain projects.

A thorough investigation of the project’s founders and key individuals helps avoid partnerships with sanctioned entities or individuals with questionable reputations. Examining the technological infrastructure and security mechanisms reduces the risk of technical failures and cyberattacks. Additionally, a transparent and well-structured tokenomics model ensures asset stability, preventing excessive volatility and artificial price inflation.

In essence, applying Due Diligence enables the development of a long-term strategy for collaboration or investment.

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The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.