Summary of Key Points:
Builders: Seek active repositories, consistent commits, and external validation to verify meaningful progress.
Usage: Prioritize fees and retained revenue over hype—utilize clear, consistent definitions.
Liquidity: Assess depth and spread across markets to determine true tradability, avoiding inflated volumes.
Token Design: Review float, fully diluted valuation, and unlock cliffs to identify potential supply issues.
Security: Audits are insufficient—examine who performed them, when, and how upgrade processes are managed.
Being an early mover involves recognizing genuine progress before it becomes mainstream: teams delivering functional code, actual users engaging with the product, and designs resilient enough to withstand initial unlocks or exploits.
There’s a lot to navigate. Developers are actively pushing updates across thousands of repositories, while new layer 2 solutions, app chains, and protocols emerge weekly.
This guide provides five straightforward checks—builders, usage, liquidity, token design and unlocks, and security—to help you distinguish early momentum from a mirage.
1) Builders: Who’s creating and where
Focus on the team and the code. The most apparent early indicator is a team releasing valuable updates publicly: multiple active maintainers, recent merges, tests, and documentation that align with new features, as well as recognition in grants or hackathons.
Useful checkpoints include developer reports like Electric Capital for overarching trends, a project’s GitHub for commit frequency and issue engagement, hackathon showcases such as ETHGlobal, and public grant databases like Optimism RetroPGF or Arbitrum.
Consistent progress is preferable to sudden “big drops,” and builders securing funding or accolades from programs with transparent criteria and public outcomes stand out. Observable work combined with external validation can help eliminate hollow projects.
Did you know? Over 18,000 developers contribute each month to open-source Web3 and blockchain enterprises; Ethereum itself has over 5,000 active developers monthly.
2) Usage: Are genuine users engaging effectively?
Once the builders are verified, ensure users are willingly paying to use the product. Two vital metrics come into play: fees (what users pay to access the protocol) and revenue (what the protocol retains after compensating validators or LPs).
Adopt standardized definitions from platforms like Token Terminal to avoid mistaking fees paid to liquidity providers (LPs) or miners for the protocol’s retained rate. Strong usage manifests as increasing fees per user and rising profits alongside stable daily or weekly active wallets—not fleeting spikes from incentive schemes.
Cross-validate metrics with independent sources such as Messari or Token Terminal to steer clear of vanity metrics and diminished volume. When assessing total value locked (TVL), consider whether deposits are genuine and active as opposed to merely chasing rewards. Favor projects where paid use, retention, and take rates ascend together, and be wary of those that falter once incentives cease.
3) Liquidity: Can you enter and exit without impacting the market?
Avoid relying solely on trading volume. What truly counts is order-book depth and stable spreads (how much capital actually sits on order books and how stable it remains during market fluctuations).
Research from firms like Kaiko indicates that depth is a more reliable measure than raw volume, which can be artificially inflated through wash trading.
Seek increasing depth across various reputable venues and spreads that remain tight even during peak periods. It’s a red flag if liquidity is predominantly concentrated in a single pool or exchange, or if reported volumes significantly surpass actual depth—both suggest shallow liquidity and a heightened risk of slippage.
4) Token Design and Unlocks: Don’t overlook the supply curve
Many so-called “gems” falter not due to poor products but because their token design is inherently flawed.
A traditional risk involves low float combined with a high fully diluted valuation (FDV): A limited number of tokens circulate, while pricing assumes substantial growth over years. When vesting cliffs are reached, new supply may outpace demand and drive prices down.
Always check the unlock schedule first. How much is currently circulating? What is the severity of the cliffs? Will future releases exceed average daily liquidity?
Research indicates how detrimental supply overhang can be, especially when insiders control significant allocations. Strong projects delineate clear, gradual unlock schedules with specified budgets for community involvement and liquidity—not vague “ecosystem” pools that can be reprioritized without transparency.
5) Security and Upgrade Path: Audits aren’t the endpoint
Security is a domain where many early investors incur losses. An audit badge is meaningful only if you understand who performed it, what was evaluated, when it occurred, and whether issues were rectified. Scrutinize 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, but if a single individual controls them, the entire protocol could be modified overnight. Guidance from Ethereum, alongside firms like Trail of Bits, underscores that audits can mitigate risk but not eliminate it.
The most reassuring signs include multiple recent evaluations, upgrades managed by timelocks and multisigs, and transparent reporting of past vulnerabilities and fixes. Anything less leaves you vulnerable to malfunctions or outright exploits.
A Note on Airdrops and Points: Leverage momentum without becoming exit liquidity
Points and airdrops are valuable for assessing early momentum, but they don’t assure long-term sustainability. Consider them a survey of early users: they indicate where builders and communities are concentrating their efforts, but the real test occurs post-token launch when incentives are subjected to actual usage.
Recent examples illustrate this trend. EigenLayer’s Season 1 “stakedrop” operated under clear rules and a limited initial supply; it was transparent, yet continued activity remained crucial after claims opened.
Blast transitioned from non-transferable points to liquid Blast (BLAST) incentives, redirecting focus toward on-chain activity and mobile onboarding. Ethena’s campaign spurred a short-term growth surge—helpful for discovery but still necessitating a stickiness evaluation once rewards concluded.
For any campaign, review the official documents for eligibility criteria, supply share, and timelines. Then, in the month following claims, monitor fees, user retention, and liquidity depth to assess whether activity persists.
Did you know? In numerous open-source projects historically analyzed, a project can become “abandoned” if core developers exit. However, in 41% of those instances, new core developers stepped in to breathe new life into it.
Trust in the Process
Consider “early” as a process, not a haphazard guess. Start with builders and verifiable code, then corroborate real usage through accurate fee and revenue metrics to prevent misinterpreting incentives as product-market fit. Finally, evaluate liquidity through actual order book depth to ensure trades can be executed without influencing the market.
When these indicators align—and token unlocks, upgrade controls, and admin powers appear robust—you’ve earned the right to continue observing or taking a calculated position.
Discipline is paramount. Risks remain elevated, and one incident can obliterate strong fundamentals overnight.
Establish a straightforward gem-scan checklist, document your assumptions, size positions while accounting for smart contract and counterparty risks, and be prepared to disengage frequently. In the long run, process compounds—fear of missing out (FOMO) does not.
This article does not contain investment advice or recommendations. Every investment and trading decision entails risk, and readers should conduct their own research before making any choices.
