Practical Project Evaluation - Due Diligence Process

Immediate Disqualifiers (any one = avoid):

🔴 Anonymous team with no track record
🔴 Promises of guaranteed returns
🔴 "Get in early" pressure tactics
🔴 Claims of "fully decentralized" game on XRPL
🔴 No visible community or activity
🔴 Copied/plagiarized content
🔴 No working product after long timeline
🔴 Tokenomics that require infinite growth
🔴 Regulatory violations evident
🔴 Smart contract claims on XRPL

Positive Indicators (look for multiple):

✅ Identifiable team with relevant experience
✅ Working product (even if basic)
✅ Active, organic community
✅ Transparent economic model
✅ Honest about XRPL limitations
✅ Regular updates and development
✅ Clear use of XRP/XRPL advantages
✅ Sustainable-looking tokenomics
✅ Realistic claims and roadmap

After 30-minute screening:

- No immediate red flags
- Several green flags present
- Interesting enough to justify time

- Any major red flag present
- Too many missing green flags
- Not differentiated enough
- Outside your expertise to evaluate

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Team Evaluation Criteria:

Identity and Background:
□ Team members publicly identified?
□ LinkedIn/professional presence verifiable?
□ Relevant experience (gaming, blockchain, or both)?
□ Track record of completed projects?
□ Any red flags in background?

Team Composition:
□ Technical capability present?
□ Business/marketing capability present?
□ Gaming industry experience?
□ Full-time or side project?
□ Team size appropriate for ambition?

Communication and Trust:
□ Regular, substantive updates?
□ Responsive to community questions?
□ Honest about challenges?
□ Professional communication style?
□ Accessible to users/investors?

Red Flags in Team:
🔴 Completely anonymous
🔴 Fake or unverifiable credentials
🔴 History of failed/abandoned projects
🔴 Defensive when questioned
🔴 Overpromising and underdelivering

Scoring: Rate 1-5 on each dimension, average for team score

Technical Assessment Criteria:

Architecture Honesty:
□ Clear explanation of on-chain vs off-chain?
□ Acknowledges XRPL limitations appropriately?
□ Hybrid architecture makes sense?
□ No impossible claims?

Code and Development:
□ Open source or code available?
□ Active GitHub/development activity?
□ Quality of code (if reviewable)?
□ Regular updates and bug fixes?
□ Security practices evident?

XRPL Integration:
□ Proper use of XLS-20?
□ Efficient transaction patterns?
□ Metadata storage appropriate?
□ Wallet integration working?

Technical Risk Factors:
□ Single points of failure identified?
□ Scalability plan reasonable?
□ Security audit (if applicable)?
□ Disaster recovery plan?

Red Flags in Technical:
🔴 Claims impossible on XRPL
🔴 No visible development activity
🔴 Security breaches or vulnerabilities
🔴 Centralized without acknowledgment
🔴 No technical documentation

Tokenomics Evaluation:

Supply Analysis:
□ Total supply and distribution known?
□ Emission schedule documented?
□ Team allocation reasonable (<20%)?
□ Vesting schedules appropriate?
□ Inflation rate calculated?

Sink Analysis:
□ Sink mechanisms identified?
□ Sink strength estimated?
□ Net inflation/deflation calculated?
□ Sustainability assessed?

Demand Analysis:
□ Utility for tokens clear?
□ Mandatory vs optional use?
□ Non-speculative demand sources?
□ "Who pays?" clearly answered?

Revenue Model:
□ Clear revenue sources?
□ Revenue > operational costs?
□ Sustainable without new capital?
□ Value capture mechanism clear?

Economic Red Flags:
🔴 Emissions >> Sinks
🔴 "Who pays?" is new investors
🔴 Revenue model unclear
🔴 Team extraction focus
🔴 Unsustainable promises

Competitive Analysis:

XRPL Positioning:
□ Why XRPL vs other chains?
□ Uses XRPL advantages appropriately?
□ Honest about XRPL limitations?

Game Category Positioning:
□ What games does it compete with?
□ Differentiation clear?
□ Sustainable competitive advantage?

Market Analysis:
□ Target audience defined?
□ Market size realistic?
□ Growth path identified?
□ Go-to-market strategy clear?

Competitive Red Flags:
🔴 No clear differentiation
🔴 Much stronger competitors ignored
🔴 Unrealistic market projections
🔴 No clear answer to "why this?"

Risk Factor Inventory:

Team Risks:
□ Key person dependency?
□ Team conflict potential?
□ Burnout/abandonment risk?

Technical Risks:
□ Security vulnerabilities?
□ Scalability concerns?
□ Platform dependency (XRPL)?

Economic Risks:
□ Tokenomics sustainability?
□ Market/price risks?
□ Liquidity risks?

Competitive Risks:
□ Stronger competitor emergence?
□ Platform migration?
□ Feature obsolescence?

Regulatory Risks:
□ Securities classification risk?
□ Gambling classification risk?
□ Geographic restrictions?

External Risks:
□ Crypto market conditions?
□ XRPL ecosystem health?
□ Black swan events?

Overall Risk Rating: Low / Medium / High / Very High

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Component Scoring (1-5 scale):

Team Assessment:        __/5
Technical Evaluation:   __/5
Economic Analysis:      __/5
Competitive Position:   __/5
Risk Assessment:        __/5 (inverted: 5=low risk)

Total Score:           __/25

Based on Deep Dive, Construct Scenarios:

- Key assumptions:
- Implied value: $___
- What triggers this:

- Key assumptions:
- Implied value: $___
- Supporting evidence:

- Key assumptions:
- Implied value: $___
- What must happen:

Expected Value = (P_bear × V_bear) + (P_base × V_base) + (P_bull × V_bull)

Compare Expected Value to Current Price

Investment Decision Matrix:

- Score ≥ 20/25
- Expected value > 2x current price
- Bear case < 25% probability
- No major unresolved concerns

- Score ≥ 16/25
- Expected value > 1.5x current price
- Bear case < 35% probability
- Concerns manageable

- Score 12-16/25
- Expected value > 1.2x current price
- Bear case < 45% probability
- Speculative only

- Score < 12/25
- Expected value < current price
- Bear case > 45% probability
- Unresolved red flags

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Project: "XRPL Battle Cards" (hypothetical)

Decision: Proceed to deep dive

Deep Dive Findings:

• Pseudonymous but consistent 1-year presence

• Show coding ability in public repos

• Responsive but small team

• No gaming industry experience

• Concern: Sustainability of 2-person team

• Honest hybrid architecture

• Working alpha product

• Good XRPL integration

• Code viewable on GitHub

• Regular commits

• Store-funded rewards (good)

• Limited sinks beyond store

• ~50% team allocation (high)

• No clear long-term sustainability

• Several TCGs on other chains

• No clear differentiation

• Small marketing presence

• Niche within niche

• High team risk (small, pseudonymous)

• Limited runway evident

• Competitive pressure likely

• Regulatory uncertainty

Total: 14/25

• Bear (45%): Project abandoned, value → $0
• Base (40%): Modest community, value stable
• Bull (15%): Grows 5x current

Expected Value = (0.45 × 0) + (0.40 × 1x) + (0.15 × 5x)
= 0 + 0.4 + 0.75 = 1.15x

• Interesting but risky
• Only speculative capital
• Watch for trajectory changes

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Assignment: Conduct full due diligence on one XRPL gaming project using this lesson's framework.

Requirements:

1. Initial screening results
2. All five deep dive component analyses
3. Scoring summary
4. Three scenarios with probabilities
5. Expected value calculation
6. Investment decision with justification

Time investment: 5-7 hours
Value: Real application of analytical framework to actual project

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1. In the initial screening phase, which finding should immediately disqualify a project?
A) Small team size
B) Claims of "fully decentralized" game on XRPL
C) No marketing budget
D) New project launch

Correct Answer: B

2. What team allocation percentage is flagged as concerning in this framework?
A) >5%
B) >10%
C) >20%
D) >50%

Correct Answer: C

3. According to the decision framework, what minimum score (out of 25) suggests a "Buy" recommendation?
A) 10/25
B) 12/25
C) 16/25
D) 20/25

Correct Answer: C

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End of Lesson 14