When the plan is too good…
Prior to its collapse, a protocol of Terra, Anchor Protocolpromised more than 20% interest on deposits in stablecoin TerraUSD (UST). This rate was well above the 5% promised by Tether (USDT) and many investors were attracted by the very high yields. Eventually, TerraUSD collapsed, as the system was not robust enough to withstand a massive withdrawal of funds from investors when the protocol rapidly reduced its yield from 20% to 17%.
The lesson here is not to rush into the highest return projects just because they are lucrative. It is better to go for projects with decent returns (5-10%) and forego excessive returns to be sure of long-term success.
Going by the world’s most successful investor, Warren Buffett, it’s not just the numbers that count, but rather the strength of a company’s fundamentals to ensure continued returns.
The future of each project is determined by what it has to offer, which should be stated in a white paper. Unfortunately, most of us don’t take the time to read it. It’s like the terms and conditions when we sign up for a new service!
A strong white paper often attracts big investors like venture capitalists. Many successful cryptos like Solana, Aave, or Polygon benefited from a venture capital boost in their early days.
An undedicated team
Sometimes all it takes is a spelling or grammar error to spot a scam. A quality project will be well crafted with the help of professional writers and talented developers.
If you see errors on a website, it’s a sign that developers aren’t spending a lot of time on it. They actually plan to spend some time there to raise funds before moving on to the next scam!