What is White Paper? Importance of White Paper in Crypto Investment

The article helps you understand more about the definition and role of the Whitepaper in investment.

What do you usually read when you find a new project? Twitter, Medium or website? All right. But there is another "character" that is also quite important that I think many people already know, but do not really understand the definition or role, that is the White Paper. 

What is White Paper?

White Paper is a document used to describe the project's properties in the most standard way, helping the community have an overview of the project. White Paper is the most standard source of information if you need to refer to any project.

The term White Paper was born before it was used in Crypto. The White Paper originated about a century ago, to refer to industry reports published by several UK government departments. As for Crypto, the Whitepaper is probably known as early as the ICO ( Initial Coin Offering ) period.

What information does the White Paper contain?

Here are some common information of a White Paper of projects in Crypto:

  • Definition of Project: The most succinct summary of a project.
  • The reason for the birth of the project: Solve some market problem.
  • Operation mechanism of the project: State the components, the role of each component in the project, the formulas used in the operation,...
  • Development roadmap: What the team will do in the future.
  • Team: Introduce each person, their role in the project.
    • Information about tokens.
    • Tokens in the project.
    • roles per token (normally only one, but recent projects, especially Gaming, can have two tokens with different roles).
    • Amount per token.
    • Details of the main token sale.
  • Investor of the project.

However, the above information is only correct at that time. Because the above information can be easily modified based on the actual needs of the market, or the capacity of the team,...

For example, Origin Protocol previously worked on the e-commerse array. However, because the NFT trend is up, and it seems that the project team is doing quite well in this area, they have changed 100% of the project goal, the White Paper from e-commerse to a project about NFT. Currently, if you go to Origin's homepage, you will not see any information related to e-comerse.

Functions of White Paper

The place that contains the most standard information

White Paper can be likened to the "original" of a project. It is possible that Crypto websites will have different views on the project definition, but if there is one place that has the most accurate interpretation, it is the White Paper.

In the White Paper, we can find almost every official information, making your investment easier.

Call for capital

Because the White Paper is considered a project sketch before starting to work, it is a prerequisite for investors to know where they are putting their money. Back in the ICO era, most projects only needed a whitepaper to raise capital.

But at the present time, the White Paper is no longer so important in raising capital. The reason is because projects are "drawn" very easily on paper, but when they start to work, they do not meet expectations. Therefore, today investors often look at the project team (previous product, talent, ...), the project has run and has the results, ... From there, a decision is made. investment decision.

Difference between White Paper and Lite Paper

As I said, the current White Paper is no longer so important for a project. Perhaps in addition to the fact that investors become more difficult, another reason is that the White Paper is quite dry , especially for heavily technical projects such as Layer 1, Layer 2, ...

Therefore, another thing that is gradually becoming popular to replace White Paper to convey information is Lite Paper. As the name suggests, Lite Paper gives us a feeling of "lighter" in terms of information, the layout is also easier to see, thereby helping the community understand the ideas, as well as the purpose of the project more clearly.

The removed parts of White Paper compared to Lite Paper often lie in the calculation of the formula, the current context. Other parts such as project definition, token information, project team, etc. are retained.

There is no constraint that only one type of White Paper or Lite Paper is allowed. Some projects are well prepared, they have both versions: White Paper and Lite Paper on the website; some others have only one of the two.

Importance of White Paper in Crypto Investment?

Because White Paper and Lite Paper have similar functions, here I will say the representative is White Paper.

The first point that White Paper helps investors is that they will gather all useful information, helping users not spend a lot of time looking for investment data .

Next, the White Paper helps you know what the core of the project does, from which you can see the potential of the project . For example, the born project can solve any market problem, if so, is that problem important or not, ...

In addition, if you watch a lot of White Paper, you will gradually realize that not every project is unique and has its own points. Some projects simply fork out of large projects, for example: 

  • AMM , most fork projects come from Uniswap.
  • Lending is fork from MakerDAO or Compound, Aave,...

Therefore, when you read into a project that is a bit like the previous one, you can immediately predict how this project will work or not (the project's tokenomics section).

Read more about how to read Tokenomics of projects here: What is Tokenomics?

Summary

White Paper is one of the basic criteria required of a project. They not only help the community have a more favorable view because the project is meticulous in preparing documents; but also a "guideline" for people to know the way to invest.


Oct 17, 2022

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