Only when the tide goes out do you discover who's been swimming naked.
Warren Buffett's quote illustrates how risk and structural weaknesses can often be overlooked during times of economic growth or market optimism. When there is plenty of liquidity and asset prices are rising, even poorly structured investments or questionable business practices may seem successful.
However, these vulnerabilities become clear during economic downturns or periods of tight financial conditions, these vulnerabilities become clear.
In this post, we rate cryptocurrencies when considering several factors, including market cap, developer activity, and transaction volume.
Why is token evaluation important?
Since January 2025, the cryptocurrency market has seen a significant drop in the value of newly launched tokens. This decline is largely due to a rapid increase in the creation of new tokens, which has led to market saturation and liquidity issues.
In January alone, more than 600,000 new tokens were introduced. This is a 12-fold increase compared to the same period in 2024. This rapid growth, driven by platforms like Pump.fun, has raised concerns about the risk of losing investor capital and the long-term viability of such an increase.
Several high-profile tokens have seen their value plummet significantly soon after their launch. For instance, the Trump meme coin, which was launched on January 17, 2025, saw its price fall by nearly 90% from its peak of $73.43 to around $8.
Similarly, the $LIBRA token, which Argentine President Javier Milei promoted, rose to $5.20 within 40 minutes of its launch. However, shortly after, its value crashed by 85%, wiping out approximately $4.4 billion in market value.
Additionally, AI-focused tokens like AI Rig Complex (ARC), Elizaos (AI16Z), and Virtuals have seen their capitalizations decrease by 75% to 90% since January.
This pattern highlights the importance of researching new crypto tokens. Investors should be cautious about projects that lack clear utility, transparent token economics, and sustainable growth strategies.
How to evaluate a token's viability
We need to examine a token from different perspectives to understand whether it has the potential to last a long time. Although metrics such as total value locked (TVL), market capitalization (market cap), and developer activity are important, they are not enough on their own to make a complete picture.
Here's a framework that helps us consider all the key aspects of a token:
1. Development activity (Developer Commits, GitHub Repos)
Development activity is a strong signal of a project's health, longevity, and technical momentum. Regular contributions indicate that the team is actively building, maintaining, and refining the product. A dormant or stagnant repo may point to abandonment, lack of funding, or shifting priorities—any of which can be red flags for investors, users, or contributors.
What to look for:
Consistent commits over time: Look for steady development over months or years, rather than a burst of activity followed by silence. A flurry of commits around launch or funding events, followed by long periods of inactivity, can indicate "pump and dump" tendencies or unsustainable hype cycles.
Number of contributors (not just commit count): A healthy project typically has a growing or stable group of contributors. A single developer doing all the work is a risk, even if commits are frequent.
Roadmap progress: Check if progress is in line with the publicly announced plan. Are the milestones being met? Is there any noticeable advancement toward the long-term objectives?
Not all commits are equal. Developers can split changes into many small commits or make non-functional edits (like formatting or README changes) just to appear active. Look at the nature and impact of the changes, not just the numbers.
2. Total Value Locked (TVL)
TVL measures the total amount of assets deposited in a protocol, whether for lending, liquidity provision, staking, or other forms of value-generating activity. It's a widely used metric because it reflects both utility (how many people are using the protocol) and trust (how willing users are to lock up capital there).
What to look for:
TVL Growth Over Time (especially Relative to Token price): Consistent growth in TVL can signal increasing adoption and user confidence. It's important to compare this growth to the protocol's token price. If TVL is growing while the token price stays flat or declines, it could indicate real usage rather than just speculative interest.
Distribution Across dApps or Pools: If most of the capital is concentrated in a single contract or vault—or worse, tied to one or two large wallets ("whales"), that introduces concentration risk and could lead to volatility or sudden exits. Broad distribution generally points to more organic usage.
Comparison to Competitor: TVL is most useful when benchmarked against protocols offering similar services. For example, comparing the TVL of decentralized exchanges (DEXs) like Uniswap, SushiSwap, or Curve helps identify which platforms are winning market share. The same goes for lending protocols (e.g., Aave vs. Compound), liquid staking (e.g., Lido vs. Rocket Pool), and other verticals.
Quality of TVL: Look for Sticky Liquidity: Not all TVL is created equal. Incentives like yield farming, liquidity mining, or temporary rewards can inflate TVL quickly, attracting mercenary capital that leaves when incentives dry up. Sustainable TVL comes from users who find intrinsic value in the project itself (e.g., reliable swaps, high lending demand, good UX), not just rewards.
Incentives like yield farming, liquidity mining, or temporary rewards can inflate TVL quickly, attracting mercenary capital that leaves when incentives dry up.
3. Market Capitalization and Fully Diluted Valuation
Market capitalization (market cap) and fully diluted valuation (FDV) provide insight into how the market is currently pricing a crypto project, both in terms of what's already circulating and what could enter circulation in the future.
During bullish periods, a project's market cap may be inflated due to narrative, branding, or influencer-driven hype, rather than real adoption or utility. Always dig into actual usage metrics, community engagement, and roadmap progress.
4. User Metrics and Adoption
User adoption is the lifeblood of any project. It validates product-market fit, drives utility for the token, and incentivizes ongoing development and ecosystem growth. Without consistent usage, even the best projects risk fading into irrelevance.
What to look for:
Daily Active Users (DAUs) and Unique Wallets: Rising DAUs often signal growing interest, stickiness, and user retention. Sustainable growth is gradual and backed by underlying product improvements or successful campaigns.
Transaction Volume and Frequency: High volume and frequency can indicate strong utility and healthy ecosystem activity. This is particularly relevant for platforms, where the number of trades, borrows, and loans reflects actual usage beyond just holding tokens.
Some projects artificially inflate their metrics using bots that don't reflect real demand. To get a clearer picture of genuine adoption, look for patterns like consistent growth, increasing wallet diversity, and community engagement on platforms like Discord or X.
5. Tokenomics and Incentives
Tokenomics determines a crypto ecosystem's sustainability, longevity, and real value of a crypto ecosystem. Poorly designed incentives or token models can lead to unsustainable growth, user attrition, or collapse after rewards dry up.
What to look for:
Clear utility for the token (beyond governance): A token should serve a functional role within the ecosystem. Beyond voting on proposals, it might be used to pay for services, access certain features, or stake for rewards. If the token's only utility is governance and it doesn't offer real value within the system, its demand may dwindle over time.
Inflation/deflation mechanisms: Inflationary models, such as staking rewards or mining, can motivate participation but may reduce the value if they are not balanced with demand. Deflationary mechanisms, like token burns or buybacks, can help boost prices but might limit participation if the supply becomes too limited.
Incentive alignment between users, devs, and investors: Effective tokenomics should guarantee that no single party can benefit in the long run at the expense of others.
High APYs or regular token distributions can temporarily boost user numbers, but these numbers may decrease when the rewards stop. Look for tokens that offer incentives gradually over time, rather than models that use short-term increases and decreases in rewards to attract users.
6. Governance and Community
When markets dip or challenges arise, the strength of the community often determines whether a project survives or falls apart. A vibrant, committed user base can continue to build, advocate for, and support the ecosystem even when external conditions aren't favorable.
What to look for:
Decentralization of governance: Who has the real power to decide the project's future? Ideally, power should be distributed, not just in the hands of early investors or core developers.
Voter participation and forum activity: A successful project should have a high level of participation in elections, thoughtful debates, and ongoing interaction on forums, Discord servers, and other communication channels.
Transparency in decision-making: Strong projects make it easy for anyone to see proposal timelines, voting records, and rationale behind key changes.
Community sentiment can be unpredictable and change quickly, especially in response to market trends, leadership errors, or controversial decisions.
Observing how the team and the governance structure react under pressure is important. Do they communicate clearly, stay involved, or do they become quiet when things get difficult?
Conclusion
Evaluating a crypto token requires a thorough approach. It's no longer about just hype, whitepapers, or short-term price movements. Instead, you need to look deeper into the fundamentals: the real value the token brings, how efficiently it uses capital, how well it keeps users, how healthy the community is, and how well the protocol compares to its competitors.
The successful tokens will be those that:
Solve real problems with reliable technology.
Generate genuine interest, not just a pursuit of yield.
Show a steady increase in total value locked (TVL), user base, and ecosystem reach.
Embrace transparency, governance, and security as the top priorities.
The fundamentals are finally catching up with the narrative in a growing market. Use this opportunity to your advantage.
FAQ: Evaluating Crypto Tokens in 2025
Is market cap still a good indicator of a token's value?
The market cap reflects the market's perception of the token's value, but it doesn't provide much information about its actual use or underlying fundamentals. It's important to consider other factors such as the fully diluted valuation (FDV), the number of tokens issued, and how the market cap relates to revenue, total value locked (TVL), or other real-world metrics.
What role does token utility play in valuation?
A significant role. Tokens with no real use other than speculation tend to disappear over time. Strong tokens usually serve crucial functions such as governance, gas, collateral, or access, and are directly connected to the protocol's economic model.
How do I tell if a token's TVL is "real"?
Consider the reasons for the activity. Does short-term yield farming drive it, or do users continue to use the platform even when the rewards stop? A strong indicator is when there is a high level of liquidity, users use the platform across multiple decentralized applications (dApps), and there is relatively little turnover in wallets or liquidity providers (LPs).
Should I worry about token unlocks or vesting schedules?
Definitely. Sudden unlocks can lead to major sell pressure. Study the vesting curve, who holds the tokens (founders, investors, treasury), and how transparent the team is about these milestones.
Are on-chain metrics still reliable in 2025?
Now more than ever. In a transparent and data-rich ecosystem, metrics such as user growth, transaction volume, retention rates, and treasury health provide a much clearer picture than just charts or tweets.
