Key takeaways:
Builders: Seek active repositories, consistent commits, and external validation to verify real progress.
Usage: Fees and retained revenue are more significant than hype — utilize clear, consistent definitions.
Liquidity: Depth and spread across venues indicate true tradability, not inflated volumes.
Token design: Evaluate float, fully diluted valuation, and unlock cliffs to identify supply overhang.
Security: Audits alone aren’t sufficient — assess who conducted them, when they occurred, and how upgrades are managed.
Being early means identifying real progress before the crowd: teams delivering useful code, users engaging with the product, and designs that won’t collapse at the first unlock or exploit.
There’s a lot to navigate. Developers are active across thousands of repositories, with new layer 2s, appchains, and protocols launching weekly.
This guide presents five straightforward checks — builders, usage, liquidity, token design, and security — to help distinguish early momentum from illusions.
1) Builders: Who’s shipping and where
Start by looking at the people and the code. The most evident early indicator is a team releasing useful updates publicly: multiple active maintainers, recent merges, tests, and documentation that keeps pace with new features and recognition in grants or hackathons.
Good sources to verify include developer reports like Electric Capital for overarching trends, a project’s GitHub for commit rates and issue activity, hackathon showcases like ETHGlobal, and public grant records such as Optimism RetroPGF or Arbitrum.
Consistent, steady progress is preferable to sudden “big drops,” and builders who secure funding or accolades from programs with clear rules and public outcomes stand out. Visible efforts and external validation help weed out hollow projects.
Did you know? Over 18,000 developers contribute monthly to open-source Web3 and blockchain projects; Ethereum alone has over 5,000 active developers each month.
2) Usage: Are real users doing valuable things?
After the builders are validated, ensure that users are actually paying for the product. Two vital metrics are fees (what users pay to access the protocol) and revenue (what the protocol retains after compensating 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 revenue. Strong usage is reflected in increasing fees per user and growing profits alongside steady daily or weekly active wallets — not fleeting spikes from incentive programs.
Verify metrics with independent sources like Messari or Token Terminal to avoid vanity metrics and thin volume. When assessing total value locked (TVL), question whether deposits are genuine and active or simply pursuing rewards. Prefer projects where paid usage, retention, and take rate increase together, and be wary of those that lose momentum when incentives cease.
3) Liquidity: Can you get in and out without moving the market?
Don’t rely solely on trading volume. What counts is order-book depth and consistent spreads (the actual capital on the books and its stability during volatility).
Research from firms like Kaiko indicates that depth is a more reliable measure than raw volume, which can be artificially inflated by wash trading.
Look for growing depth across multiple trusted venues and for stable spreads, even during peak trading times. A concerning sign is concentrated liquidity in a single pool or exchange, or if reported volumes greatly exceed actual depth — both suggest shallow liquidity and a higher risk of slippage.
4) Token design and unlocks: Don’t ignore the supply curve
Many “gems” fail not due to poor product quality but because the token design undermines them.
A common risk is low float coupled with a high fully diluted valuation (FDV): a small portion of tokens circulates, while the price anticipates substantial future growth. When vesting cliffs emerge, new supply can overwhelm demand, pushing prices down.
Always assess the unlock schedule first. How much is currently circulating? How sharp are the cliffs? Will upcoming releases outweigh average daily liquidity?
Research shows how detrimental supply overhang can be, especially when insiders possess large allocations. Solid projects present clear, gradual unlock schedules with defined community budgets and liquidity — not vague “ecosystem” pools that can be reallocated without transparency.
5) Security and upgrade path: Audits aren’t the finish line
Security is where many early investors suffer losses. An audit stamp only holds value if you know who performed it, what was assessed, when it was done, and whether issues were addressed. Examine the scope and seriousness of findings, then investigate governance: Can the code be upgraded, and who has that authority?
Proxies, pause functions, and admin keys are standard; however, if a single person controls them, the entire protocol’s integrity could be compromised overnight. Ethereum’s guidance, along with insights from companies like Trail of Bits, highlights that audits can mitigate risk but never fully eliminate it.
The best indicators are multiple recent reviews, upgrades managed by time locks and multisigs, and transparent documentation of past vulnerabilities and fixes. Anything less exposes you to potential mishaps or outright exploits.
A note on airdrops and points: Use momentum and don’t become exit liquidity
Points and airdrops can indicate early momentum, but they don’t ensure lasting viability. Consider them as early-user surveys: they reveal where builders and communities are directing their efforts, but the genuine test arises post-token launch when incentives meet real usage.
Recent examples illustrate this trend. EigenLayer’s Season 1 “stakedrop” featured clear guidelines and a modest initial supply share; it was transparent, but activity needed to persist beyond claim openings.
Blast transitioned from non-transferable points to liquid Blast (BLAST) incentives, shifting focus to on-chain activity and mobile onboarding. Ethena’s initiative generated a short-term growth surge — useful for visibility but still requiring engagement checks after 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 remains sustainable.
Did you know? Historically, in many open-source projects, a project can be “abandoned” if core developers exit. Yet in 41% of those instances, new core developers stepped in and revitalized it.
Trust in the process
View “early” as a process, not a gamble. Start with builders and code that can be verified, then confirm real usage through transparent fee and revenue data to avoid mistaking incentives for product-market fit. Lastly, verify liquidity through actual order book depth to ensure trades can occur without market disruption.
When these indicators align — and token unlocks, upgrade management, and admin controls are solid — you’ve earned the right to continue observing or to take a calculated position.
Discipline is paramount. Risks remain high, and a single event can diminish strong fundamentals overnight.
Create a simple gem-scan checklist, document your assumptions, size positions with smart contract and counterparty risk considered, and be prepared to disengage when necessary. Over time, a systematic approach pays dividends — fear of missing out (FOMO) does not.
This article does not provide investment advice or recommendations. Every investment and trading decision carries risk, and readers should carry out their own research before making decisions.
