Key Takeaways
- Builders: Look for active repositories, steady commits, consistent documentation, and independent validation that proves genuine progress.
- Usage: Fees and retained revenue matter more than hype. Use standardized definitions to avoid mixing vanity metrics with real adoption.
- Liquidity: Order-book depth and stable spreads across multiple venues reveal true tradability, not artificially inflated volumes.
- Token design: Study float, fully diluted valuation (FDV), and unlock cliffs to spot upcoming supply overhang risks.
- Security: An audit badge isn’t enough. Investigate who audited the protocol, when it was done, what issues were raised, and how upgrades are governed.
Introduction
Being early in crypto is not about guessing trends, it’s about recognizing tangible progress before the masses arrive. The strongest signals come from teams consistently shipping code, products gaining real users, and token designs that won’t collapse under the pressure of unlock schedules or exploits.
This guide introduces five critical checks, builders, usage, liquidity, token design and unlocks, and security, to help you separate crypto gems from illusions.
Builders: Who’s shipping, and where?
Start with the people and the codebase. The clearest early indicator is a team consistently publishing meaningful updates in public. Look for:
- Multiple active maintainers pushing code
- Frequent merges, robust test coverage, and updated documentation
- Recognition in grants, hackathons, or ecosystem incentive programs
Useful resources include:
- Electric Capital’s developer reports for industry-wide trends
- GitHub repositories for commit pace, issue discussions, and pull requests
- ETHGlobal hackathons for innovation showcases
- Grant programs such as Optimism RetroPGF or Arbitrum’s distributions
Sustained, incremental progress is far more reliable than sudden “big drops.” Teams that win funding or prizes from transparent programs also stand out because they undergo external validation. Visible output plus recognition from credible sources helps you filter out projects that only look good on the surface.
Usage: Are real users doing valuable things?
Once the builders check out, confirm that people are actually paying to use the protocol. Two metrics matter most:
- Fees: What users spend to interact with the system
- Revenue: What the protocol retains after compensating validators, miners, or liquidity providers (LPs)
Always rely on consistent definitions from sources like Token Terminal so you don’t mistake validator fees or LP payouts for the protocol’s retained earnings.
Strong adoption shows up as:
- Rising fees per user
- Steadily growing protocol revenue
- Increasing daily and weekly active wallets (without artificial spikes from temporary incentives)
Cross-check data with Messari and Token Terminal to avoid vanity stats. When evaluating total value locked (TVL), dig deeper — is capital actively used, or is it simply chasing rewards? Favor projects where paid activity, retention, and take rate grow together. Be cautious of protocols that collapse once incentives are removed.
Liquidity: Can you trade without moving the market?
Reported trading volume can be misleading. The real test is liquidity depth and spread consistency.
- Order-book depth: How much real money is available at different price levels
- Spreads: How tight and stable they remain during volatile conditions
Research from firms like Kaiko confirms that depth is a stronger measure than raw volume, which can easily be manipulated through wash trading.
Look for:
- Increasing depth across multiple reliable exchanges
- Spreads that stay narrow during active trading hours
- Liquidity that isn’t concentrated in a single pool or venue
If reported volumes are large but actual order-book depth is thin, slippage risk is high. That’s a red flag.
Token design and unlocks: Don’t underestimate the supply curve
Strong products can still fail if the tokenomics are poorly structured. The biggest pitfall is low float with high FDV. This means only a small share of tokens are in circulation, while the price already assumes years of future growth. When vesting cliffs unlock, sudden supply can flood the market and crush the price.
Key questions to ask:
- How much supply is circulating right now?
- When are the next unlock cliffs?
- Will the average daily liquidity absorb the new supply?
Historical research shows that heavy supply overhang is one of the most destructive forces in token markets, especially when insiders hold large allocations. The best projects:
- Publish clear, gradual unlock schedules
- Allocate transparent budgets for community and liquidity needs
- Avoid vague “ecosystem” buckets that can be redirected without oversight
Security and upgrade paths: Audits aren’t the finish line
Many investors lose money by trusting a single audit stamp. An audit only matters if you understand the details:
- Who conducted it
- What areas were reviewed
- When it was performed
- Whether all issues were resolved
Also evaluate governance:
- Can the protocol be upgraded?
- Who controls admin keys, pause functions, or proxies?
- Is authority distributed or concentrated in a single individual?
Ethereum’s own guidance, along with firms like Trail of Bits, stress that audits reduce risk but never eliminate it.
The strongest signs of maturity are:
- Multiple, recent independent reviews
- Timelocks and multisigs governing upgrades
- Transparent disclosure of past bugs and fixes
Anything less increases your exposure to accidents or malicious exploits.
A Note on Airdrops and Points: Momentum vs. Exit Liquidity
Airdrops and point systems can reveal early community momentum, but they do not guarantee sustainable adoption. Treat them as a signal of interest, not a promise of long-term value.
Examples:
- EigenLayer’s Season 1 stakedrop had transparent rules and modest initial supply, but the real test came after claims opened.
- Blast transitioned from non-transferable points to liquid Blast (BLAST) $0.002055 incentives, shifting focus to onchain activity and mobile onboarding.
- Ethena’s campaign generated short-term growth but required a post-reward stickiness check.
For any campaign:
- Read official documents for eligibility, supply share, and timeline.
- Track activity in the month after claims: fees, user retention, and liquidity depth.
- Separate temporary hype from enduring product-market fit.
Conclusion
Think of “early” not as a single guess, but as a structured process. Start with builders and verifiable code, then validate usage with fee and revenue metrics to avoid mistaking incentives for traction. Confirm liquidity through order-book depth, not just reported volume.
Finally, study token unlock schedules and governance of upgrades before committing. When these signals align, you’ve earned the right to watch closely or take a measured position.
The discipline to follow a checklist consistently matters more than chasing hype. Risks remain high, and one exploit can erase months of progress overnight.
Build a personal gem-scan checklist, write down your assumptions, size your positions with risk management in mind, and accept that walking away is often the best choice. Over time, process compounds but fear of missing out never does. Find this article useful? Read more here.
Frequently Asked Questions
What’s the single most important factor when spotting early crypto gems?
No single factor is sufficient. You need alignment between builders, usage, liquidity, tokenomics, and security. A project strong in only one area often fails when stress-tested.
How reliable is total value locked (TVL) as a metric?
TVL can be misleading. Deposits often chase yield incentives rather than genuine product demand. Always check whether capital is actively used or just parked for rewards.
How do I know if liquidity is genuine or inflated?
Focus on order-book depth and spreads across multiple exchanges. If reported trading volume is high but depth is thin, that’s a sign of artificial activity.
Why does FDV matter so much in early projects?
A high FDV with a low circulating supply often means token prices assume years of growth that may not materialize. Upcoming unlocks can crush prices if demand doesn’t keep pace.
Are audits a guarantee of safety?
No. Audits reduce risk but do not eliminate it. Always investigate who performed them, how recent they are, and whether governance structures prevent unilateral upgrades.