What “fundamentals” mean in crypto
Traditional equity analysis looks at earnings, cash flow, and balance sheets. In crypto, you analyze supply and issuance, token unlocks and incentives, on-chain usage and fee generation, developer traction, governance and security design, liquidity and market structure, and regulatory posture. These pillars let you compare very different altcoins on a consistent basis rather than chasing price momentum. For regulatory posture in the U.S., the SEC’s 2019 FinHub framework remains the key reference for assessing when a digital asset offering may be a securities transaction.
1) Supply, float, and valuation: market cap vs FDV
Circulating market cap reflects the value of tokens already trading; fully diluted valuation (FDV) multiplies price by total supply per the project’s economics. High FDV with a small current float often signals future selling pressure as additional supply unlocks. Token Terminal and Coinbase provide plain-English definitions investors use across the sector.
Beyond headline caps, some analysts use realized capitalization, which values each unit at the last on-chain move price to discount dormant or likely-lost coins—useful context when comparing networks with old, inert supply.
2) Unlocks, cliffs, and emissions you can’t ignore
Unlock schedules determine when team, investor, ecosystem, and community tokens enter circulation. Cliff and linear vesting patterns matter because large unlocks can overwhelm demand; professional dashboards and research tools track these calendars. Messari documents token unlock data features, while education from CoinGecko explains why vesting exists and how it affects float.
When modeling long-term holdings, map the unlock curve against expected demand growth rather than assuming price will “absorb” supply. Historical research and investor guides repeatedly warn that unlocks can drive short-term volatility.
3) Real usage and value capture: fees vs revenue
Activity without value capture is vanity. Token Terminal distinguishes between “fees” users pay and “revenue” the protocol actually retains after paying supply-side participants like LPs or lenders. In parallel, DeFiLlama’s methodology classifies revenue as the portion of fees the protocol keeps for itself or tokenholders. Evaluating an altcoin means asking whether usage creates durable cash-like flows to the protocol or token.
Cross-check these definitions with public dashboards that list protocol fees and revenue over time to see whether growth is broad-based or a temporary incentive spike.
4) Developer traction and ecosystem momentum
Sustained open-source development is one of the strongest lead indicators for long-term viability. Electric Capital’s annual Developer Report tracks monthly active developers, tenure, and ecosystem shares across chains, helping investors separate hot narratives from healthy builder communities. Look for growing “established” developers and rising newcomer conversion during bear markets.
5) Governance, upgradeability, and security reality
Who can change the code, mint tokens, pause transfers, or redirect fees? Many protocols use upgradeable proxy patterns designed by OpenZeppelin; explorers like Etherscan even label proxies and expose admin controls. Investigate access control (Ownable/AccessControl), proxy admins, and whether upgrades require a multi-sig such as Safe with a clear signer threshold and timelock.
Audits reduce risk but do not guarantee safety; leading firms explicitly state that reviews and test coverage aren’t assurances against future exploits. Favor projects that combine audits with layered controls like multisigs, timelocks, and least-privilege roles.
6) Liquidity and market structure: can you actually exit?
Depth around the mid-price and slippage matter far more than headline volume. Kaiko defines market depth using order books to show how much size can trade within a given percentage band—this is crucial for assessing execution risk on smaller altcoins. Review exchange quality and depth across venues, not just total listings.
Beware vanity metrics. Active addresses and volumes can be inflated by sybil activity or wash trading; independent research highlights persistent wash-trading patterns and the ease of gaming address counts. Weight fundamentals accordingly and triangulate with multiple sources.
7) Regulatory posture and jurisdictional risk
U.S. enforcement hinges on Howey’s “investment contract” analysis. Tokens marketed with an expectation of profit from others’ efforts may face securities treatment, with implications for exchange listings, liquidity, and disclosures. Read a project’s offering history, U.S. geoblocking, and legal FAQs through this lens. Outside the U.S., regimes differ, but the U.S. position still affects global liquidity.
8) Treasury health and runway
DAO and foundation treasuries fund development, audits, liquidity incentives, and grants. Review size, composition, and diversification using public treasury dashboards and disclosures; stable reserves reduce forced selling in drawdowns. Track whether “revenue” actually accrues to treasury and whether sell-side incentives exceed organic income.
A step-by-step framework you can reuse
Step 1 — State the thesis and the comparable set
Write in one sentence what the altcoin does and which five projects are closest peers. Map categories consistently using sector trackers so you are comparing like with like.
Step 2 — Build a clean supply model
Record circulating supply, total supply, max supply, FDV, and the full unlock calendar by category. Note cliffs and emissions that materially expand float within your holding horizon.
Step 3 — Tie usage to value capture
Pull time-series for users/transactions alongside fees and protocol revenue. Note the take rate and whether any of that revenue reaches tokenholders or treasury, rather than only external suppliers.
Step 4 — Verify builders and cadence
Cite developer-activity snapshots and trendlines; prefer ecosystems with rising “established” contributors and credible grants that convert to long-lived repos.
Step 5 — Inspect governance and upgrade powers
Identify proxy patterns, admin addresses, Safe signer thresholds, and any timelock. Confirm whether fee switches or mint functions exist and who can flip them.
Step 6 — Check liquidity where you trade
Evaluate 1% and 2% market-depth, spreads, and venue concentration. Thin order books mean your model should include execution costs and exit risk.
Step 7 — Score regulatory frictions
Flag U.S. exposure under the SEC framework, prior token sales, and any explicit risk factors. Adjust position sizing if listings or custodian support could change.
Red flags that deserve extra caution
Extremely high FDV versus tiny circulating float with big near-term unlocks. Admin keys or upgradeable proxies controlled by a single EOA rather than a multi-sig with a timelock. Revenues that are just recycled incentives rather than organic user payments. Sudden spikes in active addresses or volumes without corresponding fee growth or third-party confirmation.
Quick reference: metrics that actually matter
- Supply and unlocks: circulating vs total supply, FDV, unlock schedule by category.
- Usage and value capture: fees vs protocol revenue, take rate, revenue share to token/treasury.
- Builders: monthly active developers and tenure trends.
- Governance and security: proxy/upgrade pattern, access control, multi-sig threshold, timelock.
- Liquidity: 1–2% market-depth and slippage on primary venues.
- Regulation: U.S. securities analysis and offering history.
FAQ
Is market cap or FDV more important?
Both matter. Market cap reflects float; FDV reflects eventual supply. Large gaps between the two, especially with near-term unlocks, can create persistent sell pressure unless demand grows faster.
How can I tell if usage turns into value for holders?
Check whether fees are retained as protocol revenue and if any of that flows to tokenholders or treasury. High user counts with near-zero retained revenue often indicate poor value capture.
Do audits make a protocol safe?
Audits reduce risk but are not guarantees. Combine audits with strong governance, multi-sig controls, and timelocks; treat “audit = safe” claims skeptically.
Are address counts a good growth proxy?
They’re noisy and can be gamed. Cross-reference with fee growth and independent depth/liquidity data to avoid mistaking wash-traded or sybil-driven activity for real adoption.
