What is DYOR? A guide to doing your own research

What is DYOR?

DYOR is the acronym for 'do your own research'. DYOR embodies the individualistic spirit of crypto that encourages each person to conduct their own research to decide when to buy, sell, or hold certain crypto tokens to make sure they're making the right choices based on their trading strategy.

To fully appreciate the context of DYOR, let’s use the example of traditional investing. Just as an investment firm would perform an in-depth analysis on every company before locking a certain percentage of their liquid assets into it, traders should conduct equally thorough due diligence before opening any new crypto position.

To start, there are some fundamental questions you should consider before locking in your next crypto trade:

  • Do I believe in the proposed solutions the crypto project is trying to solve?

  • Do I think the company has a competitive advantage in the current market?

  • Do the project’s founders have a good reputation?

  • Does the company pass regulatory requirements for critical regions? (US, EU, and UK)

We’ll unpack how you can approach some of these questions in this article. The goal is to help you frame the research you complete, so you can make trading decisions that align with your values, goals, and risk appetite.

Why is DYOR important in crypto?

Cryptocurrency technology and its markets can be volatile when compared to traditional finance options such as bonds, stocks, or cash bank deposits. Several factors can impact the value of a digital currency, including technological advancements, regulatory changes, and market sentiment.

The crypto world offers excellent opportunities to earn money — if you play your cards right. However, crypto scams take advantage of this by promising quick riches. Of course, their promises are entirely fake, designed to draw people in.

Yearly crypto scam revenue

Online criminals use hype and fear of missing out (FOMO) to their advantage. They create a sense of urgency — a fleeting opportunity — and a now-or-never situation. Unaware of the danger, the newcomer to the industry gets drawn into the hype. They heard the stories of volatility and the importance of seizing the opportunity before it slips. They forget about caution, risk assessment, and making informed decisions. The scammer uses this information to their advantage as they proceed to rob them of their money. Before they even realize they were scammed, the scammer is long gone.

By embracing the DYOR ethos, you can understand an asset's potential for growth. You’ll start to identify any red flags, such as a lack of transparency, low liquidity, or weak security protocols, all of which can hurt your funds. And, you'll grow as a trader through the knowledge gained simply by reading about a market participant.

An added benefit of DYOR is increased confidence in your diversified portfolio. When you open positions with multiple crypto projects you believe in, you mitigate risk and spread potential losses across multiple assets.

In 2023, the cryptocurrency market saw a dramatic upturn in institutional players, indicating a major change in market conditions. This spike in institutional participation, ranging from hedge funds to major financial organizations, has resulted in more capital, stricter guidelines, and an elevated requirement for market stability and growth.

As a result, individual traders must use more advanced research tactics. It's essential to comprehend the effects of institutional involvement on market liquidity, volatility, and the long-term stability of different cryptocurrencies. This requires a more thorough examination of market behaviors, government regulations, and the technological strength of crypto projects.

Your DYOR checklist

You don’t have to have a degree in finance to fully understand the merits and risks of an asset, but you can read the project’s white paper to learn about the underlying vision and the problem it aims to solve. In fact, it may be worthwhile to read several white papers from established cryptocurrencies like Bitcoin, Ethereum, and Solana to gain a benchmark of what a quality paper should look like.

Understand an asset's market differentiation

It's wise to understand the asset's features and how it fits into the current market ecosystem, as well as whether you think the project has advantages over its competitors. It's equally important to research whether or not existing technologies would make this project’s technical foundation irrelevant in the near future.

Get a feel for the market sentiment

Check the overall market sentiment towards the cryptocurrency by looking at forums, social media, and other sources of information. Take a look at the price history and chart patterns to identify market trends and what macro factors have impacted the price. Tools like CryptoPanic or CoinGecko are ideal for aggregating news and sentiment analysis.

Research the founders and team

Get to know the project team's background, experience, and track record. Check if they have any prior experience in the cryptocurrency or blockchain space and a solid reputation in the industry. You could also look up their Linkedin accounts and check their credentials.

Scrutinize adoption and usage

Consider if the asset is used for real-world transactions, and if there's much potential for wider adoption. Here, it helps to look at the number of active users, daily transactions, and overall community engagement. You may want to use Chainalysis or similar blockchain analysis tools to track real-world adoption and usage.

Be aware of regulations

Check the regulation situation for cryptocurrency in your country or region. Know if there are any pending regulations that may restrict trading or liquidity in some markets. Specific cryptocurrencies may be restricted or banned in certain areas, so it's important to be aware of any legal or compliance issues.

What happens if you don’t do your research?

If you don't do research, you run a higher risk of trusting the wrong source and losing your assets. Any promotion is worth investigating, but only some of them are strong opportunities. It's your responsibility to figure out which is which. Many scams are hard to spot, especially if the scammers are experienced.

The biggest scam coins in crypto history
The biggest scam coins in crypto history

(Source: Traders of Crypto)

Of course, that doesn't mean that anyone who hypes up their project is a scammer. In fact, even legitimate projects sometimes promise a lot. If the project is legitimate but weak, it might fail to deliver either way. Scammers, on the other hand, have no intention of delivering. They engage in aggressive marketing called shilling, which is meant to excite you.

Scammers know that playing on investors' feelings is the best way to achieve their goals. When excitement overwhelms you, you rarely think about the consequences.

In the DeFi space, 2023 hasn't been immune to "rug pull" scams. These actions involve project owners promoting their projects to draw in participants and then running off with the money. Some examples include:

Fintoch: At the start of May 2023, Fintoch, a DeFi platform, performed a rug pull, stealing $31.6 million from its customers. It had advertised false backing from Morgan Stanley and had promised extravagant returns of 1% on a daily basis. Eventually, it was discovered that the CEO of Fintoch was just a paid actor.

Jimbo Protocol on Arbitrum: This project suffered a financial setback of $7.5 million because of a rug pull. It accounted for among the top ten out of the total $54 million that was lost to scams and rug pulls in May 2023 alone.

Deus Finance on BNB: Over $6 million was wiped out in a smart contract exploit, a common type of fraud in the DeFi landscape. This instance of theft was part of the larger trend of rug pulls and breaches in the crypto industry during 2023.

The final word

If you're new to the crypto space and trading, 'DYOR' may be the most important phrase to know as you get started in this volatile world. There's simply no substitute for careful due diligence and smart risk management as you navigate your first positions.

FAQs

What is DYOR in crypto?

DYOR is short for do your own research. It insists that traders research a project using reliable sources before committing to it. The term emerged following the ICO craze of 2016/2018 when countless scams appeared in the crypto sector.

Is DYOR a coin?

No, DYOR isn't a coin. It simply reminds traders not to trust everything in the crypto industry mindlessly. This is especially true if the offers they run into seem too good to be true.

What does DYOR mean in stocks?

Like in crypto, DYOR also exists in stock investing. It means the same — do your own research before putting money at risk.

What is the HODL slang term?

HODL is an acronym for 'hold on for dear life'. It's a term that suggests traders shouldn't sell their assets.

What does FOMO stand for?

FOMO is short for 'fear of missing out'. It's another acronym of the finance industry that describes traders' rush to buy. It suggests that traders feel compelled to rush into opening a position for fear of missing out on a great opportunity.