Unit 4 · Level 5 · Protocol due diligence: capstone
The full DD framework
Everything you've learned compresses into five lenses: TEAM (who, and are they accountable?), CODE (audited, battle-tested, open?), TVL QUALITY (real users or mercenary yield-farm money?), DOCS (do they explain the machine, or just decorate it?), INCENTIVES (who wins, who pays, where does yield come from?). Terra, FTX, and a thousand rug pulls each failed at least two lenses in plain sight.
Free to play. No ads, no token, no account needed to start.
What you get asked
Match each DD lens to its key question
Docs is the fifth lens, and often the fastest tell. Precise docs suggest a team that understands its own machine; vague docs suggest the machine is the marketing.
Why is €800M of TVL from a temporary points-farming campaign 'lower quality' than €200M of organic deposits?
TVL bought with emissions rents users; it doesn't earn them. When incentives dry up, that liquidity teleports to the next farm. Many 2021-22 'top protocols' deflated exactly this way.
An audit report exists for a protocol. What does that actually establish?
Audits reduce risk; they don't eliminate it. Audited protocols have lost hundreds of millions to exploits. An audit is a seatbelt, not immortality. No audit at all, though, is a red flag.
The lens that catches Ponzi-shaped projects fastest: follow the ___ (who pays, who profits, and what happens when inflows stop).
If existing holders are paid by new buyers' money, you've found the whole business model. Terra's 20% Anchor yield failed this lens a year before the ~$40B collapse.
You run all five lenses on a hot protocol: team anonymous, no audit, TVL doubled in a week on 300% APY, docs are adjectives. Verdict?
Four failed lenses is a verdict, not a discount. The framework's power is permission to skip: there are thousands of protocols, and you owe none of them your money. 🐜
The rest of this unit
The full framework: vet anything, size it for the frontier, and graduate scam-proof.