Key takeaways:
Builders: Seek active repositories, consistent commits, and outside validation to verify genuine progress.
Usage: Prioritize fees and retained revenue over mere hype — rely on clear, consistent definitions.
Liquidity: Depth and spread across platforms reflect true tradability, not inflated volumes.
Token design: Analyze float, fully diluted valuation, and unlock cliffs to identify supply overhang.
Security: Audits are insufficient on their own — assess who conducted them, their timing, and how upgrades are managed.
Being early means recognizing real progress ahead of the crowd: teams delivering functional code, users engaging with the product, and designs resilient to the first unlock or exploit.
There’s much to sift through. Developers are active across thousands of repositories, and 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 assist you in distinguishing early momentum from a façade.
1) Builders: Who’s shipping and where
Begin with the team and the code. The most telling early indicator is a team publicly releasing valuable updates: multiple active maintainers, recent merges, tests, and documentation that keeps pace with new features and recognition in grants or hackathons.
Good sources to explore include developer reports like Electric Capital for overarching trends, a project’s GitHub for commit rates and issue activity, hackathon showcases such as ETHGlobal, and public grant records like Optimism RetroPGF or Arbitrum.
Consistent progress is preferable to sudden “big drops,” and builders who secure funding or accolades from programs with clear rules and visible results stand out. Observable work combined with external validation helps weed out hollow projects.
Did you know? Over 18,000 developers contribute monthly to open-source Web3 and blockchain projects; Ethereum alone boasts over 5,000 active developers each month.
2) Usage: Are real users engaging meaningfully?
Once builders check out, ensure users are actually paying to utilize the product. Two primary metrics are critical: fees (what users spend to access the protocol) and revenue (what the protocol retains post payouts to participants like validators or LPs).
Utilize standard definitions from platforms like Token Terminal to avoid confusing fees paid to liquidity providers (LPs) or miners with the protocol’s retained take rate. Strong usage is reflected in increasing fees per user and rising profits alongside stable daily or weekly active wallets — not temporary spikes due to incentive programs.
Cross-verify metrics with independent sources like Messari or Token Terminal to steer clear of vanity metrics and thin volumes. When evaluating total value locked (TVL), inquire whether deposits are genuine and active or merely seeking rewards. Favor projects where paid use, retention, and take rate rise concurrently, and remain wary of those losing traction once incentives end.
3) Liquidity: Can you transact without affecting the market?
Don’t rely solely on trading volume. What truly matters is order-book depth and stable spreads (the amount of money sitting on the books and its stability during volatility).
Research from firms like Kaiko indicates that depth is a more reliable indicator than raw volume, which can be manipulated through wash trading.
Look for increasing depth across multiple trustworthy venues and for spreads that remain tight even during high traffic. It’s concerning if most liquidity is concentrated in a single pool or exchange, or if reported volumes far exceed actual depth — both suggest shallow liquidity and a heightened risk of slippage.
4) Token design and unlocks: Pay attention to the supply curve
Numerous “gems” fail not due to product quality but because token design sets them up for failure.
A typical risk is low float combined with a high fully diluted valuation (FDV): Only a limited share of tokens circulates, while the price anticipates years of growth. When vesting cliffs hit, new supply can overwhelm demand and depress prices.
Always inspect the unlock schedule first. How much is circulating now? How steep are the cliffs? And will upcoming releases exceed average daily liquidity?
Research demonstrates how detrimental supply overhang can be, especially when insiders hold substantial allocations. Robust projects disclose clear, gradual unlock schedules with defined budgets for the community and liquidity — not vague “ecosystem” pools that can be reallocated without transparency.
5) Security and upgrade path: Audits are just the beginning
Security is a common pitfall for early investors. An audit badge holds value only if you know who conducted it, what was examined, when it occurred, and whether issues were addressed. Review the scope and severity of findings, then assess governance: Can the code be updated, and who possesses that authority?
Proxies, pause functions, and admin keys are standard practices, but if a single person controls them, the entire protocol could change overnight. Ethereum’s own guidance, along with firms like Trail of Bits, stresses that audits can minimize risk but never eliminate it.
The most reassuring indicators are multiple recent evaluations, upgrades managed by timelocks and multisigs, and transparent reporting of past bugs and fixes. Anything less leaves you vulnerable to accidents or blatant exploits.
A note on airdrops and points: Leverage momentum and avoid becoming exit liquidity
Points and airdrops are useful for assessing early momentum, but they don’t guarantee long-term success. Treat them as an early-user survey: They indicate where builders and communities are focusing, but the real challenge arises after the token launches and incentives encounter genuine usage.
Recent examples illustrate this trend. EigenLayer’s Season 1 “stakedrop” featured clear rules and a modest initial supply share; it was transparent, but ongoing activity was still needed post-claims initiation.
Blast transitioned from non-transferable points to liquid Blast (BLAST) incentives, redirecting focus toward onchain activity and mobile onboarding. Ethena’s campaign generated a spike in short-term growth — valuable for discovery but still necessitating a stickiness evaluation once rewards concluded.
For any campaign, review the official documentation for eligibility, supply share, and timing. Then, in the month following claims, monitor fees, user retention, and liquidity depth to determine whether activity persists.
Did you know? In several historically studied open-source projects, a project can be “abandoned” if core developers depart. However, in 41% of those instances, new core developers stepped in to revive it.
Trust in the process
Interpret “early” as a process, not a gamble. Start with builders and code you can authenticate, then verify real usage through clear fee and revenue data to prevent mistaking incentives for product-market fit. Finally, assess liquidity through genuine order book depth to ensure trades can occur without impacting the market.
When those indicators align — and token unlocks, upgrade controls, and admin powers appear robust — you’ve earned the right to continue observing or to take a calculated position.
Discipline is paramount. Risks remain elevated, and a solitary incident can obliterate solid fundamentals overnight.
Create a straightforward gem-scan checklist, document your assumptions, size positions while considering smart contract and counterparty risks, and be prepared to walk away frequently. Over time, the process compounds — fear of missing out (FOMO) never does.
This article does not constitute investment advice or recommendations. Every investment and trading decision entails risk, and readers should perform their own research prior to making any choices.
