Saturday, 9 April 2022
Not doing much better on the health front. I don’t think I’ve gotten worse (the sore throat is actually almost gone), but just been really weak and lethargic all day. Body’s doing a standup job so I should probably reward it with some rest. That’s why I got started really early on today’s 50 Hours.
Today, I looked at red flags in NFT projects. We discuss a lot about the ‘buy’ signals, but rarely consider the things to run away from. The format for this piece will be new, as I’ll run through it in list style.
1) NFT Red Flags
This wasn’t the exact tweet that got me interested in the topic, but it is the main one that covers the thread by Wil.
Red Flag 1: Undoxxed Team
Honestly, an undoxxed team is NOT a red flag in itself. With that said, a doxxed team regardless of skillset or background adds a layer of trust. An undoxxed team is fine if they have had successful ventures before and a history of building in the past. In essence, the team (doxxed or undoxxed) should be willing to stake their reputation on the project — preferably, a reputation of being community builders and visionaries.
At the very least, their website should have links to their social media accounts. The accounts should not have been created fairly recently (less than 3 months ago). If the person is using their legitimate account, their account’s age should stretch to years. Even if the person joined Twitter and the NFT space recently, they should have a good few months of experience. (I spent 3 months just getting acquainted with the space)
Also, check to see if the team communicates well and is transparent. This factor also speaks a lot about who they are and what their priorities are. They should be communicating the good and bad to you.
Red Flag 2: Fake Twitter Accounts
Run their account through TwitterAudit to determine the percentage of real followers versus fake followers. Check to see if they have a low follower-to-like ratio, which is a big red flag. Also, check to see if any notable people or your mutuals follow them.
This is not a hard and fast rule, but accounts should not have over 100K followers before they mint, unless they are already established brands. To gain that level of following, they almost definitely bought fake followers because it’s hard to generate that type of interest pre-mint.
NFT projects should not be paying a lot for marketing as a whole. Quality projects gain momentum and following via word of mouth.
Red Flag 3: Artificial Hype
Projects should not be leveraging celebrity endorsement or paid cameo gigs. At the very least, check to see if such partnerships are real or paid. Even worse if they’re photoshopped. Even if they are real, celebrity endorsement by a celebrity who has not been in the NFT space is a major red flag. As a whole, most brand partnerships are red flags.
Red Flag 4: Unrealistic Mint Price
Real community builders start at affordable levels and do not extract the liquidity out of the market. After all, projects that allow the original minters to be in the money are what build loyal raving fans to weather the storm. Even if it is a high-quality project, just because they can demand high prices, does not mean they should. There is data that high mint prices result in poorer performance after the mint.
Even if the project demands a moderate or low mint price (relative to the average), the price should be justifiable by the roadmap, art and other factors. If it is not, it is most likely a cash grab.
Red Flag 5: Predatory Tactics
There is a whole host of such actions. They include floor sweeps, banning members for listing below prices, echo chamber, harassment, threats, and piggybacking popular projects.
Red Flag 6: Meta Cliche
A repetitive meta or roadmap is a big red flag. The team should be innovating and trying different things. This can be hard to spot for beginners (like me) as we do not have exposure to many different roadmaps. The only way to get past this is to research a lot and understand what common roadmaps look like.
The lack of ability to create proper tokenomics or a play-to-earn system with the goal of sustainability and longevity is a red flag as well. Tokens can be launched in a matter of hours, but real economies take months, if not years, to create.
Red Flag 7: Defensive and unprofessional team
At the end of the day, the project is a venture and you are a prospective investor. The team can (and should) have fun and joke around, but they should always be professional. They should be active and be answering your questions.
In addition, as an investor, you have the right to ask tough questions and demand answers. The team should not be getting defensive — Answering these questions is their job. They should not be blocking people for calling them out either
Finally, they should not be talking too much about floor prices or dips either. This just shows a short term outlook and focus on the finances. As a whole, the discord should not be focused on the floor too much either. It is supposed to be a community, not a gambling den.
Red Flag 8: Roadmap Issues
The roadmap should be clear and clean. In fact, you should be able to understand the purpose of the project straightaway. If you can’t, then the purpose is staring right at you — It’s a cash grab.
Check to see if the roadmap is unique, and not a copy-paste job. Low effort is an indicator of a team-oriented toward the short term. If they had a long term outlook, they should have planned and prepared very well.
Check to see if the deliverables on the roadmap are realistic. Unrealistic roadmaps or the team overpromising is a big red flag. If it’s too good to be true, it most likely isn’t true.
Red Flag 9: Unhealthy Whitelist Requirements
As a whole, I’m not a fan of whitelists requiring you to invite people. I can understand why it would be appealing to a creator, but I am not a fan of it.
With that said, my preferences do not make up a red flag. Requirements to invite a couple of people are fine. However, if they are unreasonable, like inviting 10, 20 or 30 people, that is a red flag. Holding invite contests is also a red flag. There are other unreasonable requirements like requiring members to achieve really high levels that make up a red flag.
In addition, if the project hired ‘grinders’, people whose job it is invite others, that is a big red flag too. High invite requirements or hiring of grinders result in a low-quality community that has the primary intention to flip, instead of staying with the project for the long term.
Requiring minimum engagement thresholds (in the form of achieving certain levels) is also bad because it promotes fake conversation, rather than authentic community interaction.
“There are plenty of red flags in projects. Running projects through the list of positive factors to look for and then, running the results through a list of red flags, will help investors isolate a very small number of projects that are worth investing in. As it should be.
Honestly, you don’t need many investments to do well, as long as 99% of them are high quality and will make you money in the long run.”
I think it was some good time spent today. I’ve been focussing more or resting and plan to continue for tomorrow as well. I have work from Monday, so I need to be in good shape by then. I may have a topic planned for tomorrow, but my extended family is coming into town tomorrow evening so I may or may not be able to work on it. I’ll try to get stuff done in the afternoon though. Let’s see how it goes… See you tomorrow!
