IDENTIFYING WEB 3.0 GROWTH OPPORTUNITIES DURING A CRYPTO BEAR MARKET
What to look for and what questions to ask?
Market downturns are seen by many as a negative sign for the future, and with the current failures of some of the industry’s largest protocols and exchanges, many people are wondering what to do.
Here are some tips on what to look for and what questions to ask:
What to look for?
In current markets, due to capital constraints, fewer protocols are developing and creating relevant technologies and business models that will drive the next phase of growth for decentralized markets and services
First, it is important to evaluate the team and the skills of its members, and which parts of the world the team is primarily from. Investors are looking for projects with teams that are able to operate cost-effectively while having access to skilled human resources. This indicates that the project is able to sustain development in a bear market, reducing the risks of project execution for investors and token holders.
Development during a bear market can be very cost effective and provides benefits to teams that are able to attract skilled human resources from developing countries.
Be careful: of projects with a high average cost base per employee, which in turn forces such protocols to lay off a significant portion of their workforce during a bear market, slowing or completely halting development. Often teams become complacent and postpone development until better times… the owners and management will blame the markets! However, this will certainly limit your ability to leverage your investment when the market is up and catch the early start of a bull market with such protocols.
The current market downturn actually favors protocols that have a more efficient cost base in terms of human resources, which are usually the largest part of the cost structure for web3 protocols. This should be highlighted in your assessments as access to capital for protocol development is limited during bear markets.
It is important to remember that web3 is global and managing teams remotely is not an easy undertaking. Therefore, it is important that core team members have the necessary skills and expertise to manage international teams around the world.
Many web3 projects are well suited to adapt to bear market conditions, as their teams are mainly composed of professionals from Asia, India, Eastern Europe, the Middle East, or Latin America, providing access to a large human resources pool with sufficiently qualified professionals
Most projects that are in the startup phase should be evaluated against a set of criteria that you, as an investor, identify and write down for yourself. Follow this guideline to avoid emotional or wishful thinking investing. In other words, do your homework to reduce your risks! Make sure you have a good understanding of the project’s technology & business model and its relevance to its target market(s), and evaluate the competitors in those segments. Considering that many protocols are moving to a decentralized Web3 ecosystem business model, which often entails multiple target markets. In such cases, make sure you understand where the majority of the revenue will be coming from.
Also note projects that may seem lackluster today, but are developing Web3 technologies that can be revolutionary and serve as platforms for onboarding companies that need rapid improvements in efficiencies and access to global markets, could prove to be excellent investments over the near term.
Given the looming recession in traditional markets, it should also be considered that the next phase of growth will be driven by the following factors: Mergers and acquisitions, stricter regulatory measures in turn creating more trust, large capital inflows from centralized markets, and overtaking their competition by becoming early adopters of Web3.
What questions to ask?
It is always important to ask the right questions, and this is even more true when investing during a bear market. Below are some key questions to ask before determining your short list of investment projects. Remember, we are likely to see a repeat of the .com days, i.e., a rapid evolution of Web3 technologies with a large number of companies going bust or gangster, with select startups offering potentially lucrative and life-changing investment opportunities. The key is to know how to reduce the risk of going bust.
Is the project team making the necessary changes to adapt to current markets?
Is the team public? This question is very important, as it is common practice for teams in the crypto economy to remain anonymous, which in 70–80% of these cases has resulted in investors losing all their invested capital. It is also important to keep in mind that anonymously maintained protocols will face a lot of headwinds in the near future due to regulation.
What technology and services is the protocol developing and how relevant is it to replacing similar centralized services and markets that may potentially fail or become defunct?
Does the protocol employ enough people and specialists with the necessary skills to execute its roadmap and business model?
Is the protocol’s core technology developed internally, outsourced through agencies, or simply using a combination of third-party APIs? It is important to understand the protocol’s dependencies on third-party vendors, which in turn can severely impact its ability to execute and operate in the future, reducing its ability to compete in a competitive environment.
Does the protocol offer a range of services that can provide an array of revenue streams, or is it dependent on only one or two revenue streams, which could ultimately lead to poor cash flow.
Has the protocol conducted previous funding rounds and how successful were they?
Does the protocol have access to capital or is it able to access capital in these bear markets?
How well does the team interact with its community and is the team sufficiently experienced to execute the planned roadmap?
Has the protocol’s technical stack been audited by a reputable tech firm?
Do team members have experience in marketing, management, engineering, development, project management, and operations?
What is the most important thing you would like to change about how the protocol currently works, and how critical can that be to its success?
Does the protocol have the potential to become an early market player in the areas it is targeting?
How large are the addressable and reachable markets that the protocol is targeting?
What is the protocol’s strategy for user acquisition and retention?
What problem or shortcoming does the protocol solve?
Can the protocol become a disruptor in the sector(s) and if so, how?
How well does the team understand the markets and the business it is developing, are there financial-economic and marketing models available to review?
What is the business strategy and is there a SWOT analysis done?
Is there a clear vision and mission that serve as the basis for the business model?
Are there meaningful partnerships established and does the team actively engage in social networking?
We hope this brief overview of what to look for and what questions to ask will be helpful for anyone looking to invest in Web3. As specialists in Web3 and crypto, we are pleased to share our experience and invite others to share theirs.
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