How to Read a Crypto Project's Financial Health Like a Pro

If you’re serious about picking winners in crypto, you need to read financial statements. Yeah, it looks boring, but once you get it, you’ll spot red flags that 90% of retail traders miss.

Let’s break down the three statements that matter:

Income Statement: Revenue & Burn

For a blockchain project, this is about:

1. Revenue streams — Token sales, transaction fees, staking rewards, or partnerships. Where’s the actual money coming from?
2. Operating costs — Dev salaries, infrastructure, marketing, audits. How fast is the runway burning?
3. Net income — If the project is burning more than it’s making, the token could face dilution from treasury dumps.

Pro tip: Check if revenue is growing faster than expenses. If not, that’s a rug pull warning.

Balance Sheet: Assets vs Liabilities

1. Assets — Treasury holdings (ETH, USDC, Bitcoin), protocol revenue, locked-in value (TVL).
2. Liabilities — Investor vesting schedules, outstanding loans, early investor claims.
3. Equity — What’s left for token holders if everything liquidates. This is crucial for assessing token value.

The catch: Many crypto projects have massive liabilities (vesting schedules that’ll dump 50M tokens next quarter). Always check vesting schedules.

Cash Flow: The Real Story

This is where lies die:

1. Operating cash flow — Real revenue from protocol usage. If this is negative, the project is surviving on hype alone.
2. Investing activities — Money spent on infrastructure or acquisitions.
3. Financing activities — New funding rounds or token burns. Massive dilution here = bad news.

Example: Bitcoin’s network generates billions in transaction fees (operating cash flow), while most L2s are burning VC money (negative cash flow). Big difference in sustainability.

The Bottom Line

You don’t need to be a CPA to spot a dying project. Just look at three things:

• Is revenue growing?
• Is the treasury being raided?
• When do major vesting unlocks happen?

The best projects show strong on-chain metrics + positive operating cash flow + reasonable token unlock schedules. Everything else is noise.