Author: Yuan Biao

Beware of Project Narratives

In the Web3 space, market trends often follow narratives, so if you are preparing to invest in a Web3 project, the most critical thing is to understand the narrative logic behind it.

But here's a reminder—be careful not to fall into the traps of "outdated concepts" and "pseudo-demand."

On one hand, the "narrative cycle" of Web3 moves particularly fast. Some sectors like the metaverse and GameFi, which were hot in the past two years, have already slowed down. If you are still fixated on these "outdated narratives," the likelihood of the project being realized is very low.

On the other hand, even more dangerous is the "pseudo-demand narrative"—for example, "using blockchain to improve breakfast delivery efficiency," or "using quantum technology to optimize personal bookkeeping." These sound cool, but they fail to address the real pain points of users. Essentially, they are just forcing the concept of blockchain into situations where it doesn't fit, artificially creating demand. Many pseudo-demands are also a breeding ground for scams in Web3 projects, so newcomers and investors must be vigilant against these scam narratives that borrow from Web3. Simply put, when you see a project narrative, consider this question first: "Could this be done more efficiently with traditional technology instead of blockchain?" If the answer is "yes," then it is likely a pseudo-demand. Just like the earlier example of "using blockchain to optimize breakfast delivery," perhaps adding a "next-day reservation" feature in a food delivery app would solve the issue. In fact, given how competitive platforms like Meituan, Ele.me, and JD.com already are, this demand may not even exist.

Verify Project Teams and Investors

In the Web3 world, the team is the primary productive force and also the easiest place to fall into pitfalls. The quality of the core Web3 team directly determines the success or failure of a project, so it is essential to carefully assess them. Common team risks mainly fall into three categories:

Completely anonymous teams: These projects are packaged with labels like "anonymous developers" or "mysterious teams," without any real identity backing. The risk of these projects running away is extremely high. For example, in 2023, there was an anonymous "AI chain" project that closed its contract just three days after launch, absconding with over ten million in user funds.

Resume-faking teams: They claim that team members "previously worked at Google or participated in core Ethereum development," but cannot be found on LinkedIn or GitHub, or the so-called "past projects" cannot be verified.

"Hands-off" teams: Founders only appear at the project's inception, while subsequent community operations and progress updates are handed over to customer service, or they may even be out of contact for long periods.

Therefore, when conducting due diligence on a project, it is advisable to do the following: verify member identities on platforms like LinkedIn; check code submission records on platforms like GitHub (if the core code is never made public, be wary of it being an "air project"); and continuously track community dynamics. If the founder has not spoken on Discord, X, or other platforms for over a month, or consistently avoids key questions like "project progress" or "fund usage," it is advisable to cut losses promptly.

In addition to the team, the background of investors is also an important reference, but do not blindly believe that "having well-known VC investment means safety." Many unreliable projects exploit this psychology for packaging:

"Buying endorsements": Some projects merely hang the name of a celebrity VC as an investor, while in reality, the VC only invested a small amount (e.g., $10,000), essentially paying for publicity.

"Over-financing" risk: If a project raises a huge amount of money (e.g., over $100 million) in the seed round, and has more than 20 investors, subsequent decision-making can easily be hijacked by capital, making it difficult to focus on the product itself.

"Phantom VCs": Some institutions claiming to "focus on Web3 investment" have no public investment cases or official websites, relying solely on collaboration with projects to "ride the wave," without any real financial support.

Therefore, it is recommended that for projects with seed round financing exceeding one million dollars and multiple investors, entrepreneurs should carefully assess the reasonableness of their fund usage, remain vigilant, and avoid pitfalls.

Prevent Token Economic Risks

Token economics can be said to be the "blood" of Web3 projects; if there are issues in its design, the entire project may collapse.

For projects that have not yet issued tokens, the risks in the token economic model mainly focus on three aspects:

Imbalanced token distribution: If the combined token holdings of the team and investors exceed 60%, and the unlocking period is particularly short (e.g., unlocking 50% upon launch), it is easy to see a collective "dump," making ordinary users the victims. Therefore, it is safer to choose projects where the total holdings of "team + investors" are not too high and have longer lock-up periods.

Lack of real application scenarios: Tokens must have real use cases and be deeply tied to product functions. If tokens can only be used for speculation and cannot be used for paying transaction fees, participating in governance voting, or obtaining ecosystem incentives, then their value lacks a foundation, and such tokens should be avoided.

"Air tokens" trap: Some projects issue tokens based solely on a white paper that "paints a big picture," without any product in sight, and may not even have a smart contract audit report. This is essentially illegal fundraising and carries extremely high risks, so be cautious.

For projects that have already issued tokens, it is especially important to be wary of a situation where tokens are distributed to groups unrelated to the project's development. For example, simply to create hype, tokens are given to certain platforms without any substantial support—this often leads to the token failing upon launch (TGE), and subsequent price trends are usually dismal, posing very high risks.

Choose Compliant Projects—Avoid "Legal Gray Areas"

As lawyer Liu Honglin from Mankun Law Firm stated at last month's Global Blockchain Summit: "Blockchain technology may be borderless, but every blockchain user is situated in a specific country or region." This highlights a key issue: every blockchain user must comply with the laws of their locality, and different countries and regions have vastly different regulatory policies for Web3, making compliance review for specific projects particularly important.

If a project lacks compliance, it may face consequences such as product delisting or penalties, and it could even implicate investors. Therefore, when selecting projects, it is crucial to pay attention to the following points:

Clarify regulatory jurisdiction: Be wary of projects registered in countries with "no cryptocurrency regulatory policies" but open to users in regions like China and the United States, which have strict regulations. If these projects do not comply with local laws (e.g., KYC requirements in the U.S. or China's outright ban on cryptocurrency trading), the risks will be very high.

Beware of illegal financial activities: Be especially cautious of projects involving pyramid schemes or Ponzi schemes, such as those promising "token principal and interest guarantees" or encouraging "referral commissions." These are often just illegal fundraising disguises.

Pay attention to intellectual property issues: If a project's white paper or product interface is suspected of plagiarism or unauthorized use of well-known IP (e.g., launching "Marvel NFTs" or "Disney Metaverse" without permission), it can easily lead to legal disputes, and such projects should also be avoided.

Conclusion

Researching Web3 projects is a systematic and detailed task that requires analysis and judgment from multiple dimensions.

Only through in-depth research can one more accurately identify a project's potential and risks, avoid blindly following trends, and lay a solid foundation for the long-term development of newcomers and entrepreneurs in the Web3 space.

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