Key takeaways:
Builders: Identify active repositories, consistent commits, and external validation to confirm tangible progress.
Usage: Fees and retained revenue are more crucial than hype — employ clear, consistent definitions.
Liquidity: Depth and spreads across venues reflect actual tradability, not exaggerated volumes.
Token design: Assess float, fully diluted valuation, and unlock cliffs to detect supply overhang.
Security: Audits alone are insufficient — investigate who performed them, the timing, and control mechanisms for upgrades.
Being early means identifying genuine progress ahead of the crowd: teams delivering functional code, users engaging with the product, and designs resilient to initial unlocks or exploits.
There’s much to navigate. Developers are actively contributing across numerous repositories, while new layer 2s, appchains, and protocols debut every week.
This guide provides five straightforward checks — builders, usage, liquidity, token design and unlocks, and security — to assist in discerning early momentum from illusions.
1) Builders: Who’s shipping and where
Begin with the people and the code. The clearest early indicator is a team releasing useful updates publicly: multiple active maintainers, recent merges, tests, and documentation that align with new features, alongside recognition in grants or hackathons.
Valuable resources to explore include developer reports like Electric Capital for overarching trends, a project’s GitHub for commit frequency and issue engagement, hackathon showcases like ETHGlobal, and public grant records such as Optimism RetroPGF or Arbitrum.
Consistent and steady progress is preferable over sudden “major releases,” and builders securing funding or accolades from programs with transparent rules and visible results stand out. Observable work combined with external validation helps differentiate substantial projects from hollow ones.
Did you know? Over 18,000 developers engage monthly in open-source Web3 and blockchain projects; Ethereum alone boasts more than 5,000 active developers each month.
2) Usage: Are real users creating value?
After verifying builders, ensure that users are genuinely paying for the product. Two critical metrics to consider are fees (what users spend to access the protocol) and revenue (what the protocol retains after compensating participants like validators or LPs).
Utilize standard metrics from platforms like Token Terminal to avoid conflating fees paid to liquidity providers (LPs) or miners with the protocol’s retained take rate. Strong usage is indicated by rising fees per user and increasing profit alongside consistent daily or weekly active wallets — not temporary spikes driven by incentive programs.
Cross-verify metrics with independent platforms like Messari or Token Terminal to steer clear of vanity statistics and minimal volumes. When evaluating total value locked (TVL), question whether deposits are legitimate and active or merely chasing rewards. Favor projects where paid usage, retention, and take rate rise in tandem, and remain cautious of those that falter once incentives are withdrawn.
3) Liquidity: Can you enter and exit without impacting the market?
Avoid relying solely on trading volume. The key factor is order-book depth and consistent spreads (how much actual liquidity is available and its stability during volatility).
Research from firms like Kaiko indicates that depth provides a more reliable metric than raw volume, which can be artificially inflated through wash trading.
Look for increasing depth across various trustworthy venues and for spreads that remain tight even during peak trading hours. A concerning sign is if most liquidity is concentrated within a single pool or exchange, or if reported volumes greatly exceed genuine depth — both point to 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 shortcomings, but because token design dooms them from the start.
A common risk is low float paired with a high fully diluted valuation (FDV): Only a limited portion of tokens circulates, while the price presumes long-term growth. When vesting cliffs arise, new supply can surpass demand and depress prices.
Always examine the unlock schedule first. How much is currently in circulation? How severe are the cliffs? Will upcoming releases overwhelm average daily liquidity?
Research illustrates how detrimental supply overhang can be, particularly when insiders possess large allocations. Robust projects publish transparent and gradual unlock schedules with allocated budgets for community engagement and liquidity — not vague “ecosystem” pools susceptible to reallocation without accountability.
5) Security and upgrade path: Audits are only the beginning
Security is where many early investors incur losses. An audit badge holds value only if you know who performed it, what was examined, when it took place, and whether the issues were addressed. Examine the scope and severity of findings, then assess governance: Can the code be upgraded, and who possesses that authority?
Proxies, pause functions, and admin keys are standard; however, if one individual has control over them, the entire protocol could be altered overnight. Recommendations from Ethereum and companies like Trail of Bits stress that audits can mitigate risk but never eliminate it.
The strongest indicators involve multiple recent reviews, upgrades governed by timelocks and multisigs, and transparent reporting of historical bugs and resolutions. Anything less leaves you vulnerable to mishaps or outright exploits.
A note on airdrops and points: Utilize momentum without becoming exit liquidity
Points and airdrops can serve as indicators of early momentum, but they don’t ensure long-term sustainability. Consider them as an early-user assessment: they reveal where builders and communities are concentrating their efforts, but the real test emerges post-token launch when incentives encounter authentic usage.
Recent scenarios illustrate the pattern. EigenLayer’s Season 1 “stakedrop” had clear guidelines and a modest initial supply share; it was transparent, yet activity required continuity after claims opened.
Blast transitioned from non-transferable points to liquid Blast (BLAST) incentives, refocusing visibility on onchain activity and mobile onboarding. Ethena’s campaign ignited a surge of short-term growth — valuable for discovery but still necessitating a stickiness assessment once rewards concluded.
For any campaign, consult the official documentation for eligibility, supply share, and timing. Subsequently, in the month following claims, monitor fees, user retention, and liquidity depth to assess whether activity sustains.
Did you know? In many historically studied open-source projects, a project can become “abandoned” if core developers depart. Nevertheless, in 41% of those cases, new core developers emerged and revitalized it.
Trust in the process
Consider “early” as a process, not a gamble. Initiate with builders and code you can verify, then validate genuine usage through clear fee and revenue data to avert confusing incentives with true product-market fit. Finally, assess liquidity based on real order book depth to ensure transactions can proceed without disturbance to the market.
When those signals align — and token unlocks, upgrade governance, and admin access appear robust — you’re poised to continue monitoring or to adopt a measured position.
Discipline is paramount. Risks remain high, and a single event can obliterate strong fundamentals overnight.
Create a straightforward gem-scan checklist, document your assumptions, size positions considering smart contract and counterparty risk, and be prepared to walk away frequently. Ultimately, process compounds — while fear of missing out (FOMO) does not.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
