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Key Insights:
Builders: Seek out active repositories, consistent commits, and external validation to ensure genuine development.
Usage: Actual fees and retained revenue are more significant than hype — utilize clear, consistent definitions.
Liquidity: Depth and spread across platforms indicate true tradability, rather than inflated volume figures.
Token Design: Examine float, fully diluted valuation, and unlock cliffs to identify potential supply imbalances.
Security: Audits are not enough — assess who performed them, when they were conducted, and how upgrades are managed.
Getting in early means recognizing true progress before the masses: teams delivering valuable code, actual users engaging with the product, and designs that won’t falter at initial unlocks or exploits.
There’s a lot to sift through. Developers are actively deploying across thousands of repositories, while new layer 2s, appchains, and protocols emerge every week.
This guide provides five straightforward checks — builders, usage, liquidity, token design and unlocks, and security — to help differentiate between early momentum and illusion.
1) Builders: Who’s Delivering and Where
Start by looking at the team and the code. The most evident early indicator is a team consistently releasing valuable updates publicly: numerous active maintainers, recent merges, tests, and documentation that keep pace with new features, along with recognition in grants or hackathons.
Good resources to review include developer reports like Electric Capital for overarching trends, a project’s GitHub for commit frequencies and issue activity, hackathon showcases like ETHGlobal, and public grant records such as Optimism RetroPGF or Arbitrum.
Ongoing, consistent progress is preferable to sudden “big releases,” and builders securing funding or accolades from structured programs with transparent results stand out. Visible efforts paired with external validation help distinguish between meaningful and hollow projects.
Did you know? Monthly, over 18,000 developers contribute to open-source Web3 and blockchain projects, with Ethereum alone hosting more than 5,000 active developers.
2) Usage: Are Actual Users Engaging Meaningfully?
Once the builders are verified, ensure users are genuinely paying for the product’s use. Two essential metrics stand out: fees (the amount users spend to utilize the protocol) and revenue (what the protocol retains post participant payouts like validators or LPs).
Adopt standardized definitions from platforms like Token Terminal to avoid confusion between fees paid to liquidity providers (LPs) or miners and the protocol’s retained rates. Strong usage is characterized by increasing fees per user and a growing profit alongside stable active wallets — not just temporary spikes due to incentive programs.
Cross-verify metrics with independent sources like Messari or Token Terminal to sidestep vanity metrics and superficial volume. When assessing total value locked (TVL), inquire whether deposits are authentic and active or merely chasing rewards. Favor projects where paid usage, retention, and take rates move upward together, and tread carefully with those losing momentum once incentives cease.
3) Liquidity: Can You Enter and Exit Without Disturbing the Market?
Trading volume alone is not sufficient. What’s critical is the order-book depth and consistent spreads (the amount of money genuinely on the books and how stable it is during volatile periods).
Research from firms like Kaiko indicates that depth is a stronger indicator than raw volume, which can be manipulated through wash trading.
Look for increasing depth across multiple trustworthy platforms and for spreads that remain tight, even during peak times. It’s a concern if most liquidity is concentrated in a single pool or exchange, or if reported volumes significantly surpass actual depth — these both indicate shallow liquidity and heightened slippage risk.
4) Token Design and Unlocks: Consider the Supply Curve
Many “hidden gems” falter not due to poor products but because of token designs that predispose them to fail.
A common risk involves low float paired with a high fully diluted valuation (FDV): a small portion of tokens circulates while the price anticipates years of growth. Upon the arrival of vesting cliffs, new supply can outstrip demand, driving prices lower.
Always begin with the unlock schedule. How much is circulating now? How sharp are the cliffs? Will future releases overshadow average daily liquidity?
Research demonstrates the detrimental impact of supply overhang, especially when insiders hold significant allocations. Prominent projects publish clear, gradual unlock schedules alongside defined budgets for the community and liquidity — not vague “ecosystem” pools that can be reallocated without transparency.
5) Security and Upgrade Path: Audits Aren’t the End Goal
Security is where many early investors sustain losses. An audit badge matters only if you know its performer, what was evaluated, when it occurred, and if issues were resolved. Assess the scope and severity of findings, and then inspect governance: Can the code be upgraded, and who has that authority?
Proxies, pause functions, and admin keys are commonplace, but if controlled by a sole individual, the entire protocol could be altered overnight. Ethereum’s guidance, along with firms like Trail of Bits, highlights that audits can mitigate risk but never wholly eliminate it.
Ideal indicators include multiple recent reviews, upgrades governed by timelocks and multisigs, and transparent disclosures of past bugs and fixes. Anything less leaves you vulnerable to mishaps or outright exploits.
A Note on Airdrops and Points: Leverage Momentum but Avoid Being Exit Liquidity
Points and airdrops can indicate early momentum, yet they don’t assure long-term success. Treat them as a preliminary user survey: they reveal where builders and communities are focusing, but the true test arises post-token launch when incentives face real-world usage.
Recent cases illustrate this trend. EigenLayer’s Season 1 “stakedrop” had clear guidelines and a modest initial supply portion; it was transparent, yet activity needed to persist post-claims.
Blast transitioned from non-transferable points to liquid Blast (BLAST) incentives, redirecting focus toward on-chain activity and mobile onboarding. Ethena’s campaign ignited a rapid growth burst — beneficial for visibility but still necessitating an evaluation of stickiness once rewards concluded.
Before any campaign, consult the official documentation regarding eligibility, supply shares, and timing. Then, within the month following claims, monitor fees, user retention, and liquidity depth to gauge if activity maintains.
Did you know? In numerous historically studied open-source projects, a project can become “abandoned” if core developers depart. However, in 41% of those instances, new core developers stepped in to revitalize it.
Trust the Process
Envision “early” as a systematic process, not a mere guess. Begin with builders and verifiable code, then validate actual usage via clear fee and revenue metrics to ensure that incentives aren’t misinterpreted as product-market fit. Finally, verify liquidity through genuine order book depth to ensure trades can occur without market disruption.
When all these signals align — and token unlocks, upgrade controls, and admin privileges appear robust — you’ve gained the right to continue observing or to adopt a measured stance.
Discipline remains paramount. Risks remain high, and a single event can obliterate strong fundamentals overnight.
Establish a straightforward gem-scan checklist, document your assumptions, size positions considering smart contract and counterparty risk, and be prepared to withdraw at times. Over the long haul, process compounds — while fear of missing out (FOMO) never does.
This article does not constitute investment advice or recommendations. Every investment and trading decision carries risk, and readers should perform their own research before making any decisions.
