Web3 Project Research for Beginners: 4 Major Pitfalls to Avoid

Beware of Project Narratives

In Web3, market trends often follow the prevailing narrative. So, if you’re considering investing in a Web3 project, the most important thing is to grasp the logic behind its story.

Here’s a crucial warning—avoid falling for outdated concepts and manufactured demand.

The “narrative cycle” in Web3 moves at lightning speed. Once-hot sectors like the Metaverse and GameFi have cooled significantly over the past two years. If you stay fixated on these outdated themes, your project’s chances of real-world success are slim.

Even riskier are “false demand” narratives—ideas like “using blockchain to improve breakfast delivery efficiency” or “applying quantum technology to personal accounting.” These sound impressive but don’t actually solve real user problems. They’re just attempts to force blockchain into irrelevant scenarios, generating artificial demand. Many scams in Web3 exploit these false narratives. Newcomers and investors must stay vigilant against pitches that recycle trendy blockchain stories. As a rule of thumb, whenever you encounter a project narrative, ask yourself: “Would traditional technology do this more efficiently than blockchain?” If the answer is “yes,” it’s likely a manufactured need. For example, “optimizing breakfast delivery with blockchain” could be solved simply by adding a next-day reservation feature to a food delivery app. Given the intense competition among leading food delivery platforms, there’s a good chance this need doesn’t even exist.

Vet Project Teams and Investors

In Web3, the team is the engine that drives everything—and it’s also a common source of risk. The quality of a project’s core team determines if it will succeed or fail, so due diligence is vital. Typical team risks include:

Fully anonymous teams: These use labels like “anonymous developer” or “secret team” but offer no real identity verification. Projects like this are at high risk for exit scams. For instance, in 2023, an anonymous project disappeared with over $10 million in user funds just three days after launch.

Resume fraud: Teams claim members “worked at Google” or “contributed to Ethereum core development,” yet you can’t find them on LinkedIn or GitHub. Their supposed track records simply don’t check out.

Absentee founders: The founders show up only at launch, then hand off all community management and updates to customer service. Sometimes they’re unreachable for long stretches.

For thorough due diligence, verify team members’ identities on LinkedIn, review code commits on GitHub (if key code is never public, beware of “vaporware projects”), and monitor community activity continuously. If a founder goes silent on Discord, X, or similar platforms for over a month, or dodges questions about project progress or fund usage, it’s best to cut your losses.

Investor background is also critical, but don’t assume that “famous VC backing” guarantees safety. Many dubious projects exploit this misconception:

Paid endorsements: Some projects claim a top VC is involved, when in reality, the VC only invested a small amount (such as $10,000)—essentially a paid promotion.

Overfunding risks: If a project raises massive amounts (over $100 million) in its seed round from more than 20 investors, future decisions may be driven by capital interests rather than product focus.

Ghost VCs: Some so-called “Web3 investment firms” have no public track record or website, and only partner with projects to ride the hype without providing real funding.

For projects with seed funding over $1 million and multiple investors, founders should scrutinize how funds are used and stay alert to potential pitfalls.

Mitigate Tokenomics Risks

Tokenomics is the lifeblood of any Web3 project—if it’s poorly designed, the project can unravel quickly.

For projects that haven’t issued tokens yet, watch for these major risks:

Unbalanced token allocation: If the team and investors together control more than 60% of tokens, and the vesting period is short (for example, 50% unlocked at launch), they could dump tokens en masse, leaving regular users exposed. Choose projects where “team + investor” holdings aren’t excessive and lock-up periods are longer for greater stability.

Lack of real utility: Tokens need to serve a genuine purpose that’s tightly linked to the product. If the token is only for trading—and not for payments, voting, or ecosystem incentives—its value is unsupported. Avoid these tokens.

Vapor token traps: Some projects issue tokens based solely on ambitious whitepaper promises, without any real product or smart contract audit. These are often just illegal fundraising schemes—stay away.

For projects with existing tokens, watch for allocations to groups unrelated to project growth—like distributing tokens to platforms for hype with no real support. This often leads to failed launches (Token Generation Event, TGE) and weak price performance, creating major risk.

Choose Compliant Projects—Stay Clear of “Legal Gray Areas”

As attorney Liu Honglin from Mankun Law Firm said at last month’s global blockchain summit: “Blockchain may be borderless, but every user operates within a specific jurisdiction.” In other words, you must comply with local laws—and since Web3 regulations differ widely by region, compliance reviews are critical for every project.

If a project isn’t compliant, it could face delisting, penalties, or even legal action against investors. When choosing projects, focus on these key points:

Regulatory clarity: Be wary of projects registered in countries without crypto regulations that target users in regions like the US or China, where oversight is strict. If these projects ignore local laws (such as US KYC requirements or China’s crypto ban), the risks are high.

Illegal finance risks: Watch out for pyramid schemes or Ponzi-like projects that promise “guaranteed token returns” or offer referral commissions—these are often fronts for illegal fundraising.

Intellectual property concerns: If a project’s whitepaper or product interface is plagiarized or uses well-known IP without permission (like “Marvel NFTs” or a “Disney metaverse”), legal disputes are likely. It’s best to steer clear of such projects.

Conclusion

Researching Web3 projects is a complex, detail-oriented process that demands analysis from multiple angles.

Only by conducting thorough research can you accurately assess a project’s potential and risks, avoid chasing hype, and build a solid foundation for long-term success in Web3—whether you’re a newcomer or a founder.

Statement:

1. This article is reprinted from [TechFlow], with copyright retained by the original author [Yuan Biao]. If you have concerns regarding reproduction, please contact the Gate Learn team for prompt resolution in accordance with relevant procedures.
2. Disclaimer: The views and opinions expressed are solely those of the author and do not constitute investment advice.
3. Other language versions of this article were translated by the Gate Learn team. Without reference to Gate, translated articles may not be copied, distributed, or plagiarized.