I've been working in the blockchain industry since late 2013, and a lot of friends have recently started asking about how should they evaluate new protocol tokens. Here is a 5-star system that I use:

1. Code speaks louder than words
When I come across a new protocol token, I skim the website and go directly to any link to the open-source code. The code quality and commit history tell me more about the project than all other metrics combined. If there is no code for the project, then the next best thing is relevant code commits of the lead developers. Vitalik Buterin didn't have a live network for Ethereum, but he made pybitcointools — a popular Bitcoin library — and Ethereum had a testnet and proof-of-concept clients.

2. A team with the relevant expertise
Open-source code is not enough. Projects can have working code but can have flaws at the protocol design level, e.g., design a system that works at a small scale but breaks if used in production. Such mistakes are harder to catch. I look for a deep background in distributed systems and/or applied cryptography for the core team members. If no one on the team has deep expertise in these fields, then the probability of protocol flaws is higher.

3. Peer-reviewed technology
There is an unfortunate trend in the blockchain space, where anyone can put up a whitepaper on a website and claim that they have a "novel solution" to a hard problem. Recently, these whitepapers are becoming less about the technology and more about token distribution plans. Having a peer-reviewed publication at a top computer science conference is a high-quality signal. It means that (a) the project is onto something truly new, (b) they've studied previous efforts, and (c) they've cleared the bar of peer feedback from relevant experts in the field.

4. Usefulness of the token in the protocol
If the token in the protocol is not clearly needed, i.e., is not tied to a scarce resource that is essential to the functioning of the protocol then the token is more of a marketing play. For Bitcoin the scarce resource is currency, for Ethereum the scarce resource is computing-power, and for Blockstack the scarce resource is digital property (like domain names). If there is no scarce resource, there is no need for a protocol token.

5. Organic interest from developers & enthusiasts
Finally, I look for signs of organic interest from developers and early adopters. You can get a sense of this from engagement in Github issues, by reading public forums, and by looking at the attendance of developer meetups. I mostly ignore any professionally prepared marketing material (websites, brochures, pitch decks).

We can apply the above system to a project like Zcash to see how it works. Zcash had working code at the time of launch, the team had deep expertise in both distributed systems and applied cryptography, the protocol was peer-reviewed and published at a top computer security conference, the token is used as currency which by definition is a scarce resource, and the project had organic interest from enthusiasts.

Zcash is clearly a project that gets 5 stars in this evaluation.

The 5-star system described here is not foolproof, doesn't apply to all cases, and other metrics are important as well. The system is a way of quickly filtering a lot of noise, and I hope you find it useful.

DISCLAIMER: This post is not investment advice. Please don't make investment decisions based on the information provided here.