Token Analysis Framework: Identifying the Potential and Returns of Low Market Cap Tokens

In this article, researcher Flip Research outlines his token analysis framework with which he has seen multiple returns. Let’s take a look at how this framework can help you quickly identify high-return, low-risk investments.

**Written by:**Flip Research

Compilation: Deep Tide TechFlow

In this article, researcher Flip Research outlines his token analysis framework by which he bet on $GNS, $RDNT, and $JOE, all of which returned multiples despite market caps in the millions. Let’s take a look at how this framework can help you quickly identify high-return, low-risk investments.

Project scope:

• Whether the narrative is obvious is very important. If it’s a complex project with niche appeal, no one will buy it, no matter how talented the team is.
• What is unique about the project? Does it bring something new to the market, or is it just a fork?
• If it is innovative, is it difficult to replicate? Are they modifying the parameters of an existing project, or writing new code?
• Following an established narrative helps projects grow (eg LSD, full chain) as these projects already have a market.

team:

• Does the team appear capable and how is it executing?
• Anonymous teams are also acceptable as long as they are capable.
• Check out their audits, especially the bugs that have been resolved. Be wary of new code they release if they make junior mistakes that lead to major/critical problems.
• If the project is just a tool for developers to attract money, it doesn’t matter how good the project looks.
• How is the team doing on social media? Competence in both development and marketing is important.

investor:

• Big VC backing is a double-edged sword. Their goal is to extract as much value as possible from the protocol, finding ways to make you their exit liquidity. If you do buy a lot of VC-funded projects, make sure you exit before they unlock.
• Ideally primarily looking for self-funded projects with a great narrative (eg $RDNT, $GNS). When VCs buy in the secondary market, they become your exit liquidity.

Code:

• Check the code yourself, especially if there is no audit. With chatgpt it’s easier than ever. If it is a forked project, compare it with the original project to see what has changed. This is often very revealing.
• Find bug bounties. Auditing is no match for incentivized bug discovery.

Token Economics/Utility:

• First, FDV (Fully Diluted Valuation) is a meme. What matters is the short-term supply and demand dynamics. Assume that the current price is a balance between supply and demand. How will this change over time?

Supplier:

• Private/Team unlock plan.
• What is the incentive emission? High emissions are acceptable if exited prior to emission.
• Is there a burn/lock mechanism?

Demand side:

• What is the mechanism on the demand side? How are they affected by platform metrics such as total value locked, fee revenue, etc.?
• Looking at the data on the chain, what is the transaction pattern of the largest holder? Are they fixed or speculative?
• Does the token have utility? If it’s just governance, it’s hard.
• Do not underestimate tokens with value accumulation.

social media:

• The key point here is, where is your exit point? Even if the token economics, team, etc. look good, if it is already known by all and Fomo, then you may be exiting liquidity.
• On the contrary, if there is no hype, who will buy your token? It also shows that the team is not doing well in terms of marketing and human relations. Finding balance in social media is very important, and it takes experience.

route map:

• In addition to good social media, an engaging roadmap is crucial. This goes back to the question of exiting liquidity. Even if a project works well on token economics, human nature will focus on major price events such as protocol upgrades, chain migrations, exploiting human psychology.

Additional points:

• Even if some tokens do not follow this framework, there will be pull orders. Often, it’s impossible to know what’s going on behind the scenes without insider information. Don’t chase the rise, you can’t pick all the winners. Focus on where you have strengths.
• The macro environment is very important, which is why I spend most of my time trying to identify major macro changes. Even the best coins have a hard time surviving the trough of a bear market.
• Don’t distract yourself too much, there are too many tokens to analyze. Focus on what you understand and love in a strong ecosystem with money flowing in. To me, this is the current $ARB ecosystem, especially DeFi.
• Participate in networking, discussing with like-minded people is more interesting and motivating, and you can get valuable information this way.
• Don’t worry about missing projects, just remember to commit decisively when the opportunity you think presents itself. At the same time, don’t fall in love with your position, the timing of the exit is as important as the timing of the entry.