Key takeaways:
Builders: Seek out active repositories, consistent commits, and external validation to ensure genuine progress.
Usage: Focus on fees and retained revenue over hype — maintain clear, consistent definitions.
Liquidity: Assess depth and spreads across venues to indicate authentic tradability, rather than inflated volumes.
Token design: Examine float, fully diluted valuation, and unlock cliffs to identify supply overhang.
Security: Audits are insufficient — consider who conducted them, the timing, and upgrade control practices.
Being proactive involves identifying real progress before the masses: teams delivering functional code, active user engagement, and designs robust enough to withstand initial unlocks or exploits.
A significant amount exists to navigate. Developers are progressing across thousands of repositories, with new layer 2s, app chains, and protocols emerging weekly.
This guide presents five straightforward checks — builders, usage, liquidity, token design and unlocks, and security — to help distinguish genuine momentum from illusion.
1) Builders: Who’s shipping and where
Begin with the team and their code. The most clear early indicator is a team releasing valuable updates publicly: multiple active maintainers, recent merges, ongoing tests, and documentation that evolves with new features, along with recognition in grants or hackathons.
Recommended resources include developer reports like Electric Capital for overarching trends, a project’s GitHub for commit frequency 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 earn funding or prizes from programs with clear criteria and public outcomes stand out. Visible work combined with outside validation helps differentiate genuine projects from empty ones.
Did you know? Over 18,000 developers contribute each month to open-source Web3 and blockchain projects; Ethereum alone comprises more than 5,000 active developers monthly.
2) Usage: Are real users engaged in valuable activities?
Once builders are verified, ensure users are genuinely paying to leverage the product. Two key metrics are essential: fees (what users spend 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 conflating fees paid to liquidity providers (LPs) or miners with the protocol’s retained takings. Strong user engagement is indicated by rising fees per user and increasing profits alongside stable daily or weekly active wallets — not temporary boosts from incentive schemes.
Cross-reference metrics with independent sources like Messari or Token Terminal to disregard vanity stats and thin volumes. When considering total value locked (TVL), question whether deposits are authentic and active or merely pursuing rewards. Favor projects where paid usage, retention, and take rate grow together, and be wary of those declining in traction post-incentives.
3) Liquidity: Can you enter and exit without affecting the market?
Don’t rely solely on trading volume. What genuinely matters is order-book depth and stable spreads (how much actual money is on the books and how consistent it remains during market volatility).
Research from firms like Kaiko demonstrates that depth is a more reliable measure than raw volume, which can be manipulated through wash trading.
Look for expanding depth across various credible venues and for spreads that remain tight even during peak periods. It’s a warning sign if liquidity is primarily concentrated in a single pool or exchange, or if reported volumes significantly surpass real depth — both indicate shallow liquidity and an increased risk of slippage.
4) Token design and unlocks: Don’t overlook the supply curve
Many “gems” falter not due to product flaws but because the token design predisposes them to failure.
A classic hazard is low float combined with a high fully diluted valuation (FDV): Only a limited portion of tokens circulates, while the price anticipates years of growth. When vesting cliffs come, new supply can inundate demand and force prices downwards.
Always inspect the unlock schedule first. What is the current circulating amount? How steep are the cliffs? And will forthcoming releases surpass average daily liquidity?
Research highlights the detrimental impact of supply overhang, particularly when insiders possess substantial allocations. Robust projects reveal clear, gradual unlock schedules with established community and liquidity budgets — not ambiguous “ecosystem” pools subject to reallocation without transparency.
5) Security and upgrade path: Audits aren’t the endpoint
Security is where many early investors incur losses. An audit badge is valuable only if you know who conducted it, what was examined, when it was executed, and whether any issues were addressed. Scrutinize the scope and severity of findings, then assess governance: Can the code be upgraded, and who has that authority?
Proxies, pause functions, and admin keys are standard; however, if a single individual controls them, the entire protocol could be modified overnight. Ethereum’s guidance, alongside firms like Trail of Bits, underscores that while audits can mitigate risk, they can never eradicate it.
The strongest indicators are multiple recent reviews, upgrades managed by timelocks and multisigs, and transparent reporting of historical bugs and fixes. Any lesser standards leave you vulnerable to mishaps or outright exploits.
A note on airdrops and points: Utilize momentum and don’t become exit liquidity
Points and airdrops can be useful for assessing early momentum, but they don’t ensure long-term sustainability. Consider them as an early-user survey: they reveal where builders and communities are concentrating, but the true assessment arrives after the token launches and incentives encounter genuine usage.
Recent cases illustrate this trend. EigenLayer’s Season 1 “stakedrop” employed clear guidelines and a modest initial supply share; it was transparent, yet activity needed to endure post-claims.
Blast transitioned from non-transferable points to liquid Blast (BLAST) incentives, shifting focus to on-chain activity and mobile onboarding. Ethena’s campaign catalyzed a wave of short-term growth — beneficial for discovery but necessitating a stickiness verification once rewards ceased.
For any campaign, reference the official documentation for eligibility, supply share, and timing. Then, in the month following claims, monitor fees, user retention, and liquidity depth to ascertain whether activity persists.
Did you know? In numerous historically studied open-source projects, a project can be considered “abandoned” if core developers depart. Nonetheless, in 41% of those instances, new core developers have stepped up to revitalize it.
Trust in the process
View “early” as a systematic approach, not a mere speculation. Start with builders and code you can validate, then ascertain real usage through clear fee and revenue metrics to prevent confusing incentives with product-market fit. Finally, evaluate liquidity through actual order book depth to ensure trades can be executed without swaying the market.
When those indicators align — and token unlocks, upgrade controls, and admin powers appear sound — you’ve earned the right to continue observing or to take a measured stance.
Discipline is of utmost importance. Risks remain elevated, and a single event can extinguish strong fundamentals overnight.
Construct a straightforward gem-scan checklist, document your assumptions, size positions with intelligent contract and counterparty risk in mind, and be prepared to step away often. In the long term, process accumulates — 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.
