At the very foundation of all crypto projects — and therefor all crypto investing — is the blockchain. There are many different blockchains out there, and this story is all about figuring out which ones will make good investments and which ones are worth avoiding. If you stick with me for tomorrow’s story, you can read about how I apply these criteria to the biggest blockchains out there today and which ones you should invest in.

The asset class we’re talking about today is the native coins for these blockchains, or what I like to call “crypto infrastructure/fuel investments.” These should be your first crypto investment: they are the coins you will typically need to pay transaction fees on the blockchain, will generally be tied to the usage of said blockchain, and are less risky than individual crypto project tokens. In other words, as more people use the particular blockchain you’ve invested in, your coins increase in value.

My Main Criteria for Evaluating Blockchains

1. Overall Market Cap/Chain Health

The first thing I look at, unsurprisingly, is the coin’s market cap and overall blockchain health. Specifically, I look to both consider how much upside that coin could have (cause if it already has a really high market cap, how much higher could it realistically go?) and how diverse and healthy the on-chain projects are.

The first of those criteria — market cap — is easy enough to find through CoinMarketCap or CoinGecko. Important note: DO NOT LOOK AT THE PRICE OF THE ASSET; make your buying decisions based on market cap, not price.

The second of those criteria — chain health and diversity — is more challenging to assess. You can start by filtering the list of cryptos on CoinGecko by the platform (for instance, this is the list of Ethereum-based projects) and then looking at how many projects there are with at least a $100M market cap. For the big boys like Ethereum and Binance, there will clearly be a huge number of large projects, but for others, you’ll have to see. I also personally consider the diversity of said projects, as for instance, the Binance Smart Chain has a ton of projects on it, but there’s a lot of overlapping projects and not a ton of real diversity.

For DeFi projects specifically, you can get a good sense of the diversity of projects on a chain over at DeFi Llama.

You can also just wait for tomorrow’s story to get my take on which of the major chains have good overall health.

2. Transaction Fees/Chain Performance

The second criteria I look at is what it’s like to actually use the blockchain, as I’m interested in what the technology can actually do. If transactions are expensive and slow, then chances are that chain isn’t going to see a ton of usage growth, but if transactions are fast and cheap, it will be more attractive for users and developers to use the chain.

This is satirical, of course, but Ethereum is notorious for its ridiculously high gas fees to transact on the network.

Other things I consider here are how decentralized the chain is — more decentralization is generally better — and what the consensus mechanism is. Don’t be scared by that term: consensus mechanism basically just refers to how a blockchain validates its transactions. For now, there are two types of consensus you will likely run into: Proof of Work (PoW) and Proof of Stake (PoS).

You may have heard about PoW if you read stories about how power hungry and inefficient Bitcoin and Ethereum are (they’re both PoW chains). I believe that technology is antiquated and will hold the chain back, and as such, I do not personally invest in PoW blockchains. PoS consensus on the other hand is a newer technology that, in my opinion, is superior to PoW in almost every way: transactions are generally going to be way faster, cheaper, and the chain is secured by people who have a large amount of the chain’s native coin already, meaning they are inherently disincentivized to be a bad actor cause they would lose out on the value of their own stake in the chain.

So to recap: I’m looking for fast and cheap transactions on a relatively decentralized chain using Proof of Stake consensus.

3. Stablecoin Support/Savings and Lending Protocols

I believe that stablecoins — coins pegged to a stable currency like USD — are the future of crypto, that these are what is going to propel crypto adoption in the next decade for sure and probably much longer than that. So it should be no surprise that I’m looking for robust stablecoin support when I’m considering an investment. For example, the Terra blockchain — $LUNA — is a blockchain built around algorithmic stablecoins (this is why 100% of my investments are on the Terra blockchain). More on Terra in a future story.

Call me a #LUNAtic, but I love Terra.

Supplementary to stablecoins would be a vibrant savings and lending protocol. Think like a bank, but decentralized. You can deposit your stablecoins and earn an interest rate (usually way way higher than a regular bank will give you on your USD), and on the back-end, the protocol (which is just a bunch of code) is lending your stablecoins out to others and collecting interest from them. I don’t have time to dive deep into the details of how these work here, but having a really solid and robust savings/lending protocol is a big thing I look for.

4. DEX (Decentralized Exchange) Liquidity

Arguably the most important dApp (Decentralized Application) class on any blockchain is the DEX. DEXes are the foundational applications that allow users to swap between the various coins and tokens found on the chain without relying on centralized exchanges. They also provide some of the best income opportunities in crypto today. Again, I won’t get deep on DEXes here (I’ll save that for another time), but needless to say, when I’m evaluating a blockchain, I’m looking to see what its DEXes are and how much liquidity they have (as more liquidity = more stable asset prices and smoother swaps).

5. Cross-Chain Support

This is more looking towards the future. In the future, crypto will be cross-chain which means you might have assets on one chain and on another chain and will need/want to be able to bridge your assets from one chain to another. Some projects are specifically designed around this like Polkadot ($DOT) and Cosmos ($ATOM). Others use “bridges” that facilitate the process of transferring assets across chains, but this usually comes with extra fees. This functionality will become more important and valuable over time, so it’s something I consider, though it’s lower on my list.

6. Team and Backing

Finally, I’m looking at the team behind the project and their backing. Building a blockchain is an incredibly complicated and expensive endeavor, so I want to know that the team behind my investments is able to shoulder such a heavy burden. Seeing a team that is very active on Twitter/Reddit/Telegram, with robust documentation, a good whitepaper, and plenty of capital backing inspires trust in me as an investor.

(Bonus) NFTs and Crypto Consumer Products

Crypto Kitties was the project that created NFTs.

An extra aspect I’m considering is the health of the chain’s NFT ecosystem and consumer-facing products like crypto games. Since we’re still in the *very* early days of the Crypto Consumer Economy (future story on this coming at the end of this series), I’m not expecting much from blockchains in this realm right now, but in the long-run, a robust consumer-facing economy in addition to the investor-facing economy will be a great sign that the chain can weather the bear markets a lot stronger. And at the end of the day, we need to find ways to get consumer money in these markets too, because that’s when things are going to really explode.

Where would you like me to dive deeper?

I know this story was a very cursory-level introduction to the things I consider when looking at a blockchain as an investment opportunity, but I would love to dive deeper into one or all of these individual topics. So please, leave me a comment telling me where you’d like me to dive deeper so I can tailor future content to serve my audience.

As I am not a registered fiduciary agent, none of my advice is legally binding in any way, and choosing to follow or not follow it is a responsibility that lies squarely on your shoulders. Crypto is a volatile market, and a significant crash in values is a normal event in this space, just as a significant increase in values is. Treat the market as an irrational actor (which is what it is), buy the proverbial dip when possible, take some profits along the way, and enjoy the ride.