Posted on 21st Mar 2021 by the LSS team
Noise, FUD and scams
The world of cryptocurrencies is unbelievably noisy. There are scams, there is FUD (Fear, Uncertainty and Doubt), there are rug pulls, there are Twitter influencers who collectively gang up on projects they missed out on. There are those who say Bitcoin will moon and nothing else will succeed, and there are those who claim the coin they invested in will soon obviously do a 100x, overtake Bitcoin and rule them all.
Once you have been in the space for a while it’s easy to pick up on most of this, but even then you sometimes get impacted by it. Personally, lately I have repeatedly questioned my own high conviction in a number of projects that I truly believe in, simply because they fell victim to a concerted FUD effort.
Even when discussing the fundamentals of all the different projects in the space, it is difficult to come to a clear understanding of which projects will make it, which are potentially better than the others, etcetera. Some are proof of work, some are proof of stake, some focus on decentralisation and others focus on having as many dApps as humanly possible. Which coins stand out?
Enter the LSS crypto index
We believe that at a high level there are 4 key pillars that should be looked at when assessing the quality of a cryptocurrency. These 4 pillars are decentralisation, social (network effect), development and price action and are at the heart of our new cryptocurrency index. Decentralisation in our view is the core component of any cryptocurrency project worth anything, as that has been the goal of the space since the early days of Bitcoin. In truth, it is relatively easy to create a centralised blockchain and run a node or two, but real decentralisation is not so easy to achieve and closely linked to the second metric of social factors (network effect). The few projects that do achieve this are likely to win the race.
Beyond that, a stagnant blockchain that works well can be valuable, but is likely to do even better if it has active development on top of it. This concept also closely relates to governance, which can help to steer these development efforts. Even better if that happens in a decentralised manner. See how it all links together? Finally, crypto is full of pump and dump action so price is always going to be noisy, but we believe that especially with institutions entering the space, price is starting to reflect fundamentals more and more. There may be things we miss out on that the market is aware of, and adding recent price action as an index component complements this nicely.
Our index remains a work in progress and we will be looking to add coverage for at least all of the cryptos we cover on our platform. For now, inputs to the model are things like the number of nodes a project runs, the amount of Google hits, the amount of Reddit subscribers, recent and longer term price action
At present we see a top 5 that consists of Bitcoin, the undisputed number one, followed by Cardano, Ethereum, Uniswap and Polkadot. These are all much hyped projects and according to our index rightly so. Cardano lacks somewhat on social aspects but has very quickly achieved a degree of decentralisation that the others don’t, and this is important. It is a close competitor to Ethereum.
On the bottom of the charts we see the likes of Filecoin, Ripple, Algorand, VeChain and Tezos. Now each of these have their own story, but for instance Ripple lacks on decentralisation, development and price action although having one of the better social metrics. Meanwhile Algorand scores pretty average/below average on most metrics.