Alright, let’s talk about due diligence—a phrase you’ve probably heard tossed around in boardrooms, business meetups, and now, Twitter Spaces, Discord and Telegram.
But what is due diligence?
Put simply, it’s the work you put in before making a decision, a chance to pull back the curtain and see what’s really happening backstage. Think of it as doing your homework, but the stakes are your wallet, reputation, and peace of mind. And in Web3—where crypto, NFTs, Bitcoin, and DAOs are turning the business playbook upside down—due diligence is more than just a smart move; it’s your safety net.
Newsflash: A 15 Minute Google Search Is Not Due Diligence
If you think scanning a few articles on Google is enough to call it a day, let me save you some hard lessons. Real due diligence is more than a Google search, a scroll through Twitter, or an hour in a Discord AMA. It’s about diving in, not just dipping a toe in. It means knowing the people you’re dealing with, understanding the code and tech behind the promises, and getting a feel for the whole ecosystem—before you sign on the dotted line or hit “send” on that wire transfer.
Imagine buying a house based on a five-minute walkthrough. You wouldn’t. You’d check the foundation, plumbing, neighborhood—all the invisible stuff that determines if this place is worth your investment. Web3 is no different, and skipping that groundwork in this space is like walking blindfolded into a house with a foundation made of sand.
So, to try and help my community, I'm sharing 3 resources and approaches at the end of this article to help you conduct your due diligence. But, before jumping to the end, take a minute and continue reading. It’s important you understand what a lot of people are doing wrong, especially in this time of hype and FOMO. Also please keep in mind that while I am a lawyer, I'm not your lawyer. No legal advice is being given in this article.
The Foundations of a Smart Due Diligence Strategy
So, how do you go beyond the basics? Here’s a roadmap to keep you from getting caught in the quicksand of hype and FOMO (fear of missing out).
1. People First: In Web3, the technology might be decentralized, but the people behind it still matter. Track down who’s calling the shots. What’s their track record? Do they disappear when things get tough, or do they stand by their projects? Vet the team with the same energy you’d use to check a restaurant’s kitchen if you were allergic to peanuts.
2. Understand the Tech: You don’t need to be a developer, but you do need to know what makes the wheels turn. Find out if the project’s code has been audited. Ask, “Is this open-source? Who can see the code?” If you’re not familiar with technical lingo, get someone on your team who is. The more eyes on the code, the safer your bet.
3. Legal and Regulatory Check: This isn’t your “move fast and break things” moment. Understand the laws and regulations in your country—and others too. Cryptocurrencies and DAOs are notorious for dancing in the gray areas, and regulators are watching. Make sure your dream project won’t become a nightmare because of unexpected legal battles or shutdowns.
4. Risk Management: Web3 can be like the wild west. Risks are real, but they can be managed. Set limits for yourself: know how much you’re willing to invest and risk. And if it’s too good to be true? It probably is. You’re better off walking away than diving into something you don’t understand.
Due Diligence Is Your Seatbelt in Web3’s Roller Coaster: Think of Web3 as a thrilling roller coaster. It’s fast, exciting, and full of surprises. But, like any good ride, you need a seatbelt. Due diligence is that seatbelt, that solid reassurance that even if things go sideways, you’ve done your part to protect yourself.
So next time someone tells you about the latest token or a DAO with “game-changing potential,” resist the urge to just dive in based on the sizzle. The real winners in this space? They’re not the ones who move the fastest—they’re the ones who move with the most insight.
Wrap-Up
At the end of the day, due diligence in Web3 isn’t just a formality; it’s your compass in a decentralized wilderness. Do your research. Ask the tough questions. And remember: the only thing riskier than asking questions is not asking them.
Mitch Jackson, Esq. On Bluesky https://bsky.app/profile/mitch.social
More posts here https://whtwnd.com/mitch.social
Three Due Diligence Approaches:
Use the two professional services below. They dive into billions of data points covering 5 categories and 37 sub-categories. Even better, having an experienced lawyer or other qualified professional do this for you.
1/ Thomson Reuters CLEAR https://legal.thomsonreuters.com/en/insights/articles/due-diligence-business-investigations-checklist
2/ Nexis Diligence™ https://www.lexisnexis.com/en-us/professional/risk-management/nexis-diligence-plus.page
3/ AI Prompt: Due Diligence Background Prompt And as a third inexpensive option for less important matters, use this AI prompt (or customize it for your own unique needs):
Prompt:
You are a highly skilled private investigator specializing in due diligence background checks for personal and business matters, utilizing both traditional offline and new cutting-edge online tools. Your expertise includes comprehensive background checks, legal research, and analyzing potential risks for individuals and businesses.
Task:
Conduct an in-depth background check on the individual and business entity described below. Your investigation should cover the following:
[Insert Name or Company and URL. Describe the product, service and industry in detail. If you’re using ChatGPT4o pro, click the new search feature. Perplexity works well too.]
1/ Legal History: Identify any past, pending, or potential legal issues, including criminal, civil, or administrative allegations, claims and cases. This includes, but is not limited to, charges or allegations of fraud, theft, conspiracy, sexual misconduct, or any other wrongful conduct.
2/ Business Reputation & Financial Health: Review their business dealings, financial stability, and reputation within their industry and community. Highlight any bankruptcies, insolvencies, or other red flags.
3/ Online & Offline Presence: Analyze their digital footprint, including social media, news articles, and any public records. Cross-reference this with offline sources such as court records and professional certifications or licenses.
4/ Affiliations & Associations: Investigate any known business partners, professional connections, or associations that could impact their credibility or expose potential risks.
5/ Risk Indicators: Summarize any patterns of behavior or actions of the person, business or in the industry, that suggest the people or company associated herein are high-risk individuals or entities when it comes to engaging with in business or legal matters.
6/ Regulatory Issues: Analyze all existing and potential regulatory or legal issues associated with this person, company, industry, product or service.
Deliverables: Provide a clear and concise due diligence report, broken down into key sections with headings and subheadings. Ensure the analysis is easy to understand, and include links and references where applicable for further verification.
