Module 5: Fundamental Analysis and Tokenomics

Team, Investors, and Governance

Chapter 11 of 15 · about 5 minutes

11.1 Who's behind it?

Mint found a project with an impressive product but an anonymous team. Another project had famous founders and big-name investors, but its product seemed half-finished.

"Which matters more," asked Mint, "the people or the product?"

"Both, in different ways," said Hash. "The product shows what's been done. The team shows who's likely to keep doing it, and whether they can be trusted with your money while they do."

11.2 Evaluating the team

QuestionWhy it matters
Are the founders publicly identified?Identified founders have reputations and legal accountability at stake
What have they built before?A track record of shipping products is strong evidence
Do they have relevant expertise?Building a blockchain needs different skills from building a game
How long have they worked on this?Long commitment signals seriousness
How do they communicate?Honest updates about problems are a good sign; constant hype is not
Are they building or mainly marketing?Compare product updates with promotional activity

Anonymous teams. Crypto has a tradition of pseudonymous builders, starting with Satoshi Nakamoto. Some highly respected protocols were built by pseudonymous developers. Anonymity isn't automatically a red flag. But it removes legal accountability, so the bar for other evidence, like public code, audits, track record, and decentralised control, should be higher.

Verify claims. Team members sometimes exaggerate past roles or invent credentials. Check professional profiles, past projects, and whether former colleagues or projects confirm their involvement. A team with fake profiles is a serious warning sign.

11.3 Evaluating investors

Venture capital backing can be a positive signal: experienced investors have done some due diligence, and funding gives the team resources to build. But it's not a guarantee, and it comes with trade-offs.

PositiveCaution
Professional investors reviewed the projectInvestors make many bets; they expect most to fail
Funding to build and hireInvestors usually bought tokens far below public prices (Chapter 4)
Connections to exchanges, partners, and talentUnlocks to investors can create selling pressure (Chapter 5)
Reputation risk for the investorBig names have backed projects that collapsed, including FTX

"So famous investors don't mean it's safe," said Mint.

"FTX had some of the most famous investors in the world," said Hash. "Investors can be wrong, and their incentives aren't the same as yours. They bought at a fraction of your price."

11.4 Governance

Governance is how decisions get made about a protocol: upgrades, fee changes, treasury spending, and risk parameters. In crypto, governance often happens through token voting, where each token equals one vote.

The key question is: who actually controls decisions?

Governance factorWhat to check
Voting power distributionDo insiders or a few large holders control the majority of votes?
ParticipationWhat share of tokens actually vote? Low turnout lets small groups decide
What governance controlsMajor decisions, or only minor parameters?
ExecutionAre votes automatically executed on-chain, or does a team multisig decide whether to follow them?
Time delaysIs there a waiting period before changes take effect, giving users time to exit if they disagree?
DelegationCan holders delegate votes to others? Who are the largest delegates?

Here's an example of how concentrated governance can be:

Holder groupShare of voting power
Team and foundation30%
Early investors22%
Top 5 delegates15%
All other holders33%
Typical voter turnout among other holdersVery low

In practice, team, investors, and a few delegates can pass almost any proposal. The protocol may be "decentralised" in its code, but its decisions are made by a small group.

11.5 Governance attacks

When governance controls valuable treasuries or contracts, it can be attacked. An attacker can accumulate or borrow enough tokens, sometimes through flash loans (Module 3, Chapter 12), to pass a malicious proposal, such as sending treasury funds to themselves.

Protections include time delays before execution, voting power based on tokens held over time rather than at one moment, minimum participation requirements, and emergency mechanisms. When evaluating a protocol, check whether these protections exist, especially if the treasury is large relative to the token's market cap.

11.6 The foundation and the company

Many crypto projects have two related organisations: a company, sometimes called a labs entity, that develops the software, and a foundation or DAO that holds the treasury and oversees governance.

This structure can create tensions. The company may earn revenue, such as from a front end or services, that doesn't flow to token holders. The company's equity investors and token holders may have different interests. Understanding who owns what, and where value flows between them, is part of fundamental analysis.

Chapter 11 · Who captures the value

Users of the protocol pay fees. On the left, front-end and service fees go to the labs company, which develops the software and runs the front end, and its profits stay with equity holders: founders and company investors. This path is marked as leakage because the value never reaches the token. On the right, protocol fees go to the foundation or DAO, which holds the treasury and oversees governance; value reaches token holders only if governance directs it, and token holders vote back into governance. Token holders own the token, not the business.

Owning the token isn't the same as owning the business. Revenue the labs company earns from a front end or services goes to its equity holders, and protocol fees reach token holders only if governance directs them there. Trace both paths before assuming the token benefits from the product's success.

"So I could own the token while someone else owns the business," said Node.

"In some cases, yes," said Hash. "That's exactly why you check."

11.7 Transparency

Good teams and governance processes tend to be transparent. Look for regular reports on development, treasury, and spending; public governance forums where proposals are discussed openly; clear disclosure of insider holdings and unlock schedules; honest communication after incidents or setbacks; and published audit results, including issues found.

A project that avoids sharing basic information, deletes critical comments, or responds to questions with hostility is telling you something.

11.8 Try it yourself

Choose a project you're curious about. Research its founders: are they identified, and what have they built before? Find its main investors and, if available, their entry prices. Then visit its governance forum and voting platform. Find the last five proposals: how many tokens voted, who were the largest voters, and what did the proposals actually decide?

Key takeaways from this chapter

  1. Evaluate teams on identity, track record, expertise, commitment, and honest communication.
  2. Anonymous teams aren't automatically bad, but require stronger evidence elsewhere.
  3. Venture backing brings resources and some due diligence, but investors bought cheaply and can be wrong.
  4. Governance quality depends on who controls votes, participation, scope, execution, and time delays.
  5. Concentrated voting power can make a "decentralised" protocol controlled by a few.
  6. Governance attacks are possible when valuable treasuries are poorly protected.
  7. Understand the relationship between companies, foundations, and token holders, and value transparency.