Beginner's Guide to Web3 Project Research: 4 Major Pitfalls to Avoid
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Beginner's Guide to Web3 Project Research: 4 Major Pitfalls to Avoid
Don't fall into the trap of "outdated concepts" and "fake demands."
Navigating Web3 tides with focused insightsAuthor: Yuan Biao
Beware of Project Narratives
In the Web3 space, market trends often follow narratives. Therefore, if you're planning to invest in a Web3 project, the most critical step is understanding the logic behind its narrative.
But here's a warning—don't fall into the trap of "outdated concepts" and "pseudo needs."
On one hand, Web3 "narrative cycles" move extremely fast. Sectors like the metaverse and GameFi that were hot two years ago have already slowed down. If you're still fixated on these outdated narratives today, the likelihood of successful project execution is very low.
On the other hand, an even greater danger lies in "pseudo-need narratives"—for example, "using blockchain to improve breakfast delivery efficiency," or "using quantum technology to optimize personal accounting." These ideas may sound impressive, but they don't address real user pain points. At their core, they are simply forcing blockchain concepts onto problems that don't need them, artificially creating demand. Many pseudo-needs provide fertile ground for Web3 scams, so newcomers and investors must be cautious of such scam tactics disguised under Web3 narratives. Simply put, when you encounter a project narrative, ask yourself first: "Can this be done more efficiently without blockchain, using traditional technology?" If the answer is yes, it's likely a pseudo-need. Take the earlier example of "optimizing breakfast delivery with blockchain"—perhaps adding a "next-day reservation" feature in a food delivery app would solve it. In fact, given how competitive platforms like Meituan, Ele.me, and JD already are, this need might not exist at all.
Verify the Project Team and Investors
In the Web3 world, the team is the primary driver of success—and also a common pitfall. The quality of a Web3 core team directly determines whether a project succeeds or fails, so careful evaluation is essential. Common team risks fall into three categories:
Fully anonymous teams: Projects labeled only as "anonymous developers" or "mysterious team" with no verifiable identities. These projects carry an extremely high risk of exit scams. For example, in 2023, an anonymous "AI Chain" project shut down its contract just three days after launch, absconding with over ten million dollars from users.
Teams with fake credentials: Claiming team members "previously worked at Google" or "participated in Ethereum core development," but no such individuals can be found on LinkedIn or GitHub, or their so-called "past projects" cannot be verified.
"Hands-off" teams: Founders who only appear during the initial phase, then hand over community management and progress updates entirely to customer support, or become completely unreachable over time.
Therefore, when conducting due diligence on a project, it's recommended to take the following steps: verify member identities on platforms like LinkedIn; check code contribution records on GitHub (if core code is never made public, beware of "air projects"); and continuously monitor community activity. If founders haven't spoken on Discord, X, or similar platforms for over a month, or consistently avoid key questions about "project progress" or "fund usage," consider cutting losses promptly.
Besides the team, investor background is also an important reference—but never blindly assume "safe" status just because well-known VCs are involved. Many unreliable projects exploit this mindset for packaging:
"Paying for endorsement": Some projects merely list a prominent VC as a participant, though the VC invested only a minimal amount (e.g., $10,000), essentially paying for promotion.
Risk of "over-funding": If a project raises a massive sum in its seed round (e.g., over $100 million) with more than 20 investors, decision-making may become hostage to capital interests, making it difficult to focus on product development.
"Ghost VCs": Some entities claim to specialize in Web3 investments but lack public investment cases or official websites, gaining visibility only through collaborations with projects, while offering no real financial backing.
Therefore, for projects raising over a million dollars in seed funding with multiple investors, entrepreneurs should carefully assess the合理性 of fund usage and remain vigilant to avoid pitfalls.
Mitigate Token Economic Risks
Token economics is essentially the "lifeblood" of a Web3 project. If poorly designed, it can lead to the collapse of the entire project.
For projects that haven't yet issued tokens, token economic risks mainly concentrate in three areas:
Unbalanced token distribution: If the combined holdings of the team and investors exceed 60%, especially with short unlock periods (e.g., 50% unlocked at launch), mass dumping becomes highly likely, leaving ordinary users as victims. Opt instead for projects where the total allocation to team + investors isn't excessive and lock-up periods are longer—this is safer.
Lack of real-world utility: Tokens must have genuine use cases and be deeply integrated with product functionality. If a token is only used for speculation and cannot be applied to pay fees, participate in governance voting, or earn ecosystem incentives, its value lacks foundation. Avoid such tokens.
The "air token" trap: Some projects issue tokens based solely on a whitepaper with no actual product, sometimes even lacking a smart contract audit report. These are essentially illegal fundraising schemes with extremely high risk—stay alert.
For projects that have already launched tokens, watch out for one particularly risky scenario: distributing tokens to groups unrelated to project development—for instance, giving tokens to certain platforms purely for hype without receiving any real support. This often leads to a failed token generation event (TGE) and dismal price performance afterward, posing significant risk.
Choose Compliant Projects—Avoid Legal Gray Zones
As lawyer Liu Honglin from Manqin Law Firm said at last month's Global Blockchain Summit: "Blockchain technology may be borderless, but every blockchain user resides within specific countries and regions." This highlights a crucial point: every blockchain user must comply with local laws, and regulatory policies toward Web3 vary greatly across jurisdictions, making compliance review for individual projects especially important.
If a project lacks compliance, it may face consequences ranging from delisting and penalties to potential legal liability for investors. Therefore, when selecting projects, pay close attention to the following:
Clarify regulatory jurisdiction: Be wary of projects registered in countries with no cryptocurrency regulations but actively targeting users in strictly regulated regions like China or the U.S. If such projects fail to comply with local laws (e.g., KYC requirements in the U.S. or China's outright ban on crypto trading), the risks are extremely high.
Beware of illegal financial activities: Exercise caution with projects involving MLM or Ponzi schemes, such as promising "principal-guaranteed returns" on tokens or encouraging "referral commissions." These are often disguised forms of illegal fundraising.
Watch for intellectual property issues: If a project's whitepaper or product interface appears plagiarized, or uses well-known IPs without authorization (e.g., launching "Marvel NFTs" or a "Disney Metaverse" without permission), it could easily trigger legal disputes. Such projects should be avoided.
Conclusion
Researching Web3 projects is a systematic and meticulous process requiring analysis and judgment from multiple angles.
Only through thorough due diligence can one accurately identify a project's potential and risks, avoid blind following, and lay a solid foundation for long-term success for both newcomers and entrepreneurs in the Web3 space.
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