Top Do’s and Don’ts for Choosing a Great DeFi Project in 2023

Published in

The Dark Side

3 min readMar 15, 2023

Decentralized finance (DeFi) has become a well-liked substitute for conventional finance because it offers a variety of financial services, such as lending, borrowing, and trading, without the use of middlemen. But as DeFi gains more and more traction, a flood of new projects has emerged, making it difficult to pick the best one.

We’ll go over the dos and don’ts of choosing a fantastic DeFi project in this blog post.

Do #1: Research the project thoroughly.

It’s crucial to conduct extensive research on a DeFi project before investing. To learn about the project’s objectives, team, and technology, consult its website, whitepaper, and social media platforms. To find out what other people are saying about the project, you can also check unbiased review websites and social media platforms.

Do #2: Check the project’s security measures.

When investing in a DeFi project, security is a key factor. Verify the project’s implementation of strong security measures, such as multi-factor authentication, cold storage for money, and regular security updates, and whether it has undergone a security audit.

Do #3: Evaluate the project’s token economics.

Token economics play a significant role in the success of a DeFi project. Evaluate the tokenomics of the project to ensure that it aligns with the project’s goals and that it provides incentives for investors to hold the token long-term.

Do #4: Assess the project’s community and adoption.

The success of a DeFi project depends on the community and its adoption. Evaluate the project’s social media channels, forums, and other online communities to understand how engaged and active the community is. Additionally, check if the project has partnerships with other DeFi projects or traditional financial institutions, as this can signal broader adoption.

Do #5: Diversify your investments.

Any successful investment strategy must include diversification, and investing in DeFi projects is no exception. Spending all of your money on one project can put you at greater risk. To lessen risk and improve your chances of success, diversify your investments across a number of DeFi projects.

Here are the don’ts:

Don’t #1: Invest in projects that promise unrealistic returns.

DeFi projects that promise unrealistic returns are often too good to be true. Avoid projects that make such promises, as they are likely to be scams or Ponzi schemes.

Don’t #2: Invest more than you can afford to lose.

DeFi investments can be risky, and it’s crucial to invest only what you can afford to lose. Don’t invest your life savings or take out loans to invest in a DeFi project. Only invest the amount that you’re comfortable losing.

Don’t #3: Overlook the team behind the project.

The team behind a DeFi project plays a critical role in the project’s success. Evaluate the team’s credentials, experience, and track record before investing in the project. Avoid projects with an anonymous or inexperienced team.

Don’t #4: Ignore the project’s regulatory compliance.

Regulatory compliance is critical when investing in DeFi projects. Check if the project complies with the relevant regulations in your jurisdiction. Projects that ignore or circumvent regulations can face legal action, putting your investment at risk.

Don’t #5: FOMO into the hype.

DeFi projects can generate a lot of hype and excitement, leading to Fear Of Missing Out (FOMO) investing. Avoid investing in projects solely based on hype or FOMO, as these projects can be overvalued and risky. Instead, make informed decisions based on thorough research and evaluation of the project’s fundamentals.

Summary

Choosing a fantastic DeFi project necessitates extensive investigation and assessment of the project’s objectives, team, technology, security precautions, and token economics. You can improve your chances of investing in a DeFi project that matches your investment objectives and risk tolerance by adhering to the dos and don’ts listed in this blog post.