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Fundamental Analysis of Web3 Technologies

There are two main ways to invest in Web3: by investing in Web3 markets and investing in Web3 technology startups. This article will focus on the latter and provide a checklist for investors to use when evaluating a potential investment.

For many investors applying fundamental analysis to Web3 markets is an oxymoron. In the extreme they claim it is pure gambling (1). But even casino games are analyzed to understand risks and rewards.

When considering investing in a Web3 technology startup, it’s crucial to understand both the market and the technology. Investors should ask questions like: is the technology unique or a copy of an existing one, and is the startup solving a complex problem in the Web3 space?

Investors in Web3 technology startups must understand not only the technology itself, but also its potential for innovation and its ability to solve real problems in the Web3 space, such as scalability. When considering investing in a Web3 startup, it is important to have an initial conversation with the founders to assess their technical capabilities and the potential of their product.

It’s worth noting that even professional investors and influencers like Multicoin Capital funds can make mistakes, and many investments in the Web3 space are driven by the founders’ personal networks rather than their technical expertise. For this reason, we focus on technical due diligence when evaluating Web3 startups.

A successful technology startup investment requires an analysis of the market, team, and product. To help ensure a successful launch, we have included a basic checklist for the technology involved in the product. And, of course, a solid go-to-market strategy is also essential for success.

  1. Is the project simply a copy of an existing product or a fork of another project? For example, forking a Ethereum blockchain node codebase or existing DeFi projects such as SushiSwap did with Uniswap.
  2. Are there other similar projects to compare it with? For example, if the project claims to offer a new blockchain with proof-of-stake consensus, how does it compare to existing solutions such as Algorand and Eth2? If the product is a wallet, how does it differ from the numerous existing wallet apps?
  3. Does the project have a governance model and is it truly decentralized?
  4. Are the smart contract developers experienced with programming language security issues, such as in Solidity, Rust, or Teal?
  5. Has the codebase, including frontend and backend, been reviewed or security audited?
  6. Does the product rely on or use centralized or third-party technologies such as oracles?
  7. If the product is based on novel research, is there a proof of concept available?
  8. Does the project have a well-designed tokenomics model?
  9. What is the roadmap and resources for the MVP and future iterations?
  10. Does the project have a clear go-to-market strategy for exchange listings?

If you need further help, feel free to reach out for our Web3 technical due diligence services.


(1) For strong but civil discussions see HackerNews submissions and comments.