DPRating

Crypto Rating Model 3.1

A consistent rating framework is the premise of subjective, comparable and scientific rating results. In order to elevate its professionalism and versatility, the DPRating team has released an important and comprehensive update to our framework in absorbing our previous experience and collecting feedback from the community. Instead of delivering a single rating evaluation, we now supremely give out assessments on investment potential and risk.

Background

Our first quantitative model SmartICO was released in June 2017. Since then, DPRating has made two new versions of our quantitative frameworks for crypto evaluation. Nearly a hundred reports have been made based on these models, including comprehensive reviews that rank and compare different projects. Each of the previous models have had their advantages and disadvantages. These models are meant to evolve with new developments and adapt to the current state of the crypto industry.
Lately, our readers have asked us about the difference between risk and qualification. In the traditional finance rating market, rating agencies such as Moody’s and S&P release credibility ratings based upon the default rate. Investment banks like Goldman and Citibank rate the qualification i.e. how much growth investors can expect. In our previous models, SamartICO and ChainDC, qualification and risk were both in the same sector, which now seems unreasonable. Our goal for this upgrade is to keep risk and qualification independent.

Secondly, taking the ChainDC series model as an example, some dimensions do not reflect gradients and differences. For example, many project parties do not pay attention to the disclosure of funds supervision methods at present, which leads to the result of most incompetent and medium-scoring results regardless of the quality of the project. This is obviously not reasonable enough. Similarly, some dimensions are more cumbersome and less fair; for example, in the evaluation of blockchain relevance, based on the design of the project in the encryption layer, contract layer, consensus layer, network layer, platform layer, application layer and incentive layer, It is not fair enough for a public chain type to always get a relatively high score. In fact, the Token economic system and the intrinsic value-driven investigation throughout the life of the project are equally important. Therefore, in the new model, another task is to delete and adjust the problematic dimensions to further ensure that the sub-dimensions are independent and do not interfere with each other.

Another objective of the new model is to adjust current dimensions so that projects with good community building and international popularity gain more points in qualification. The basic dimensions remain Team and Project (same as within the ChainDC model), but adjustable factors will now also be given certain weight. The details are as follows:

1. Rating dimensions and indicators

Since the importance of each dimension varies, their weights are determined individually. When choosing and weighing dimensions, Occam’s Razor is our guiding principle. There is no need to include dimensions that are not relevant to value or barely differentiate between projects.
Credit evaluating is essentially an assessment of risk, equivalent to the “Risk Assessment” dimension in our in-depth reviews. The selection of risk dimensions is dependent on the current compliancy standards of the industry. The result is an accumulation of many sub-divisions in order to create an integrated final evaluation. Typical risks include non-transparency, exaggerated information, etc. This evaluates a project’s credibility and the likelihood it fulfills its commitments.
The investibility evaluation includes the projects, the effectiveness of token incentive mechanisms, the current market value, and many other factors. Project and Team are the most fundamental dimensions while there are also adjustable variants as the project develops through its different phases. In general, the higher the investibility is, the more undervalued the project is in terms of market cap.

2. Rating method and process

Rating methods and processes indicate the full processes and methods (research, qualitative evaluation) comprising an in-depth review. This includes information collection, due diligence investigation, auditing after draft review, etc.

3. Levels of rating

Investors need a clear understanding of the levels of rating in our project reviews if they are to successfully use them as reference. If these levels are not clearly defined, they will provide little advice for investors hoping to learn more about the risk and investibility of a project.
Defining levels is also one of the major challenges when designing a rating framework. The levels should not be too tight nor too broad. When defining investibility we adopted a nine level system which ranges from CCC as the lowest to AAA the highest. For risk there are five levels.

Risk assessment system

Risk assessment is an overall assessment containing many sub dimensions. It conducts qualitative and quantitative analysis for related risk factors. Quantitative factors are mostly for disclosed information from the project side and from research, such as transparency, exaggeration, fundraising, compliancy, and several other adjustable factors.

1. Transparency

(1) Basic information

Evaluating whether all necessary information for investors is disclosed by the project, including fundamental information (official website, white paper, communication channels, roadmap and code repo), and whether there are additional materials (such as a technical yellow paper, ecosystem paper or token economics paper, the level of outsource, etc).

(2) Team information

The project's core team should be disclosed. Information about the core team helps investors know the founder, the team’s experience, whether there are scandals or negative history, whether they are working full time for the project, whether there is enough staff for the team, any major changes in the team, etc. All of the above information is indispensable for investors hoping to know the strength and stability of the team. On the contrary, lack of transparent information is a sign of an unstable team. Investors should weigh any past history of failure from the project founder or core team as evenly as they weigh successful past experience, as such past failures reveal potential risks that are often neglected. Additionally, an investor should look into whether the company has a larger entity that owns it, as well as the amount of time the project has been in operation.

2. Authentification

Transparency is a basic indicator in risk analysis. Change of concept and exaggeration are very common in promoting a blockchain project, so analysts need their information to be verified and to carefully examine the source of that information.
Common non factual information from a team include exaggerations about education and work background, e.g. an internship repackaged into professional experience, investors listed as advisors, including non-investors and advisors on the advisors list. Other common exaggerations include fake popularity, exaggerated industry resources, non factual media propaganda etc. A project's attempts to fool investors into unrealistic expectations will affect its ratings in the risk dimension.

3. Fundraising and compliancy

Fundraising is one of the key risk indicators. The most important factors are the number of fundraising rounds and the price, the lock-up period, budget allocation, additional issuance, etc. In the earlier stages of a project, some of these indicators can be merely regarded as empty promises, but they do partially reflect the token economic concept behind the project. Projects have different standards for fundraising in different industries; our method is to compare the project’s market cap with its rivals and to conduct objective, justified conclusions on the funding plan of the project.

For compliance, the actual plan and the execution of the fundraising are evaluated. Whether it is internal supervising, or external supervising by their community or a third party, the project has to spend investor money wisely and respect the plan it has previously set.

Based on the above three items, we have developed a risk rating quantification table as follows:

First dimensionSecond dimensionThird dimension(Score) Details
TransparencyBasic informationWhitepaper
0No whitepaper
1Has whitepaper
2Has whitepaper and additional yellow paper or ecosystem/tekeneconomy whitepaper
Social media and communication channels
0No social media nor communication channel
1Has telegram and twitter as communication channels
2Has many communication channels including Youtube, forum, reddit, developers community etc.
Github
0Not open source
1Private repository
2Open source
3Open source and well documented, conforms the roadmap
Core teamTeam’s records
-2Have negative history (Risk)
0Cannot be verified
1Verifiable and very detailed (Through LInkedin, ITJUZI or other channels)
Full-time or part-time
-2All employees are part-time (Risk)
-1Some employees are part-time
1All employees are full-time
Operation time
0Within 3 months
13-6 months
2More than 1 year
Has an physical entity?
0No
1Yes
Change of team
-1Core team member has left
0No changes
1Has expanded the team
2Has introduced new members who will eminently contribute to the project
AuthenticityTeam members’ experience
-3infomation of the executive team, investor or advisor is forged
-1Information of the executive team, investor or advisor is exaggerated
1Information is authentic
Industry resources
-3Industry resource is forged (risk)
-1industry resources is exaggerated
1Industry resource is authentic
Fake popularity of social media and community
-2Fake popularity of social media or community
1Authentic popularity
Marketing and PR
-1Has exaggeration in Marketing and PR
0No exaggeration in Marketing and PR
Fundraising and complianceFundraising roundsRatio of price in each round
-1Not transparent
0Ratio is not reasonable, the gap between each round is too big
1Ratio is reasonable
Ratio of the total funding in each round
-1Not transparent
0Ratio is not reasonable, the gap between each round is too big
1Ratio is reasonable
Lock-upTeam lock-up
-2No lock-up
-1Lock-up period is too short (Less than 6 months)
1Lock-up period is reasonable considering the road-map
2Lock-up period is long
Investor lock-up
-1No lock-up
1Lock-up period is reasonable (3 to 6 months)
2Lock-up period is long
Budget disclosure
1No budget disclosure
0Budget is disclosed but ambiguous
1Budget is disclosed and detailed
Additional issuance
-2Unreasonable additional issuance
1Additional issuance within a reasonable range
Fund supervision
0No fund supervision
1Internal fund supervision
2Fund supervision by the community
3Fund supervision by third party
CompliancePolicy
0Likely to be regalated
1Unlikely to be regulated
KYC
0No KYC
1Reasonable KYC
Adjustable factorMarket capEstimated Market cap
-5Very high
-3High
0Adequate
3Low
5Very low
The corresponding results of the risk rating are as follows:
Risk gradeMeaningDescription
A[25-30]Very low risk
Excellent performance in every indicator
Project is well illustrated, Team members’ experiences are authentic, Completion level is high.
Progress conforms the roadmap, overall risk is low.
B[20-25]Low riskGood performance in every indicator, risk is relatively low.
C[10-20]Medium risk
Average performance in every indicator, no apparent shortage. Risk is medium.
D[5-9]High risk
Low performance in certain indicators.
Apparent shortage in some indicators, Uncertainty surrounding the project is severely affecting its investment value.Risk level is high.
E[<5]Very high risk
Very low performance in certain indicators
The projects has numerous potential risks, e.g. negative past records, exaggeration or fraud.The projects prospect is very uncertain.Likely to fail or be a scam.
Comment: Risk evaluation is focused on force projects stability and risk level of the future development. It is all based on open data and information, its conclusion should be precise, without any ambiguity. The levels of risk increases progressively. All the projects are covered in the above metric.

Investibility evaluation

Qualification is also an integrated quantitative and qualitative evaluation based on many dimensions besides just fundamental analysis and estimated market cap. Adjustable factors are set for different types of projects in different phases. Quantitative indicators have three core aspects: project, team, and adjustable factors. These three core aspects, together with estimated market cap, decide the qualification of a project.

1. Project (35%)

(1) Positioning: 15%

Includes a project’s competitive field (basic infrastructure, solution, use cases), the project's current status, the maturity of its technology and its potential market.

(2) Competition: 5%

Many projects are similar in concept and design. It is important to ask whether such projects have their own core innovation as a “moat,” as a unique competitive advantage not easily replicated or adapted by competitors. When analyzing a project, investors need to distinguish which parts of the projects do not really differentiate it from its many rivals, and which parts qualify as truly unique advantages.
First-mover projects tend to have more experience and a team working on later, delivery based stages of the project. When analysts evaluate projects’ first mover advantages, a comprehensive investigation including related past examples is necessary. Analysts must also identify projects that haven't had any updates or progress for a long time, since it is likely such projects are reselling old services with a new blockchain label.

(3) Necessity of the project: 15%

This dimension should be evaluated using two aspects: pain point (i.e. what problem is the project solving?) and the token incentive mechanism. The pain point assesses the estimated impact on the industry’s efficiency, and has four levels: no demand, has demand, strong demand, and rigid demand. It is inevitable to be subjective when judging the perceived demand of a project, but analysts should nevertheless justify their decisions with strong evidence and convincing reasons.
The token incentive mechanism measures the importance of tokens within the system. It also has four levels: no token incentive mechanism, has token incentive mechanism, token incentive mechanism is integrated, token incentive mechanism is highly integrated.

2. Team: (40%)

(1) Executive team: 30%

The strength of the executive team is the key indicator that pushes the project forward at a steady pace. The members’ former blockchain experience, accumulated entrepreneurship experience, and accumulated industry resources are all especially important. This dimension evaluates the executive members' blockchain experience, software development experience, and related industry resource.

(2) Investors and advisors: 5%

Investors and advisors bring their own influence and resources to the team, but investors should note that if the investors or advisors have little connection to blockchain, or the industry the project has chosen, then the actual positive impact of their involvement will be limited.

(3) Institutional investors: 5%

Evaluation of institutional investors will use DPRating’s Venture’s ranking as a reference. Community and Popularity.

3. Community building and popularity (20%)

Evaluating community building and popularity is based on a project's social media platforms, as well as search indexes, PR events.

4. Adjustable factor (-10%~10%)

(1) For those projects that have already been launched, this evaluation will be based on its market cap, roadmap goal fulfillment, and code updates.
(2) For those projects that haven't been launched, this evaluation will be based on its estimated market cap (which is based on the token economic model), and the current status of development.
Based on the above, the quantitative table of qualification rating is as follows:
First DimensionSecond dimensionThird Dimension(Score) Comment
ProjectPosition 15%Position 15%
Competitive advantages 5%First mover 2%
0No
1No, but has unique advantages
2Yes
Innovative 3%
0No
1Little innovation
2Lots of innovation
3Important break through
Necessity 15%Is it Pain point 5%
-1No demand
2Normal demand
4Strong demand
5Rigid demand
Token incentive mechanism 10%
-1No token incentive
4Has token incentive mechanism
7Token incentive mechanism is integrated
10Token incentive mechanism is highly integrated
TeamExecutive Team 30%Team profile and project match 10%
0Level of Match is low
3Level of Match is relatively low
6Level of Match is medium
8Level of Match is relatively high
10Level of Match is very high
Software development experience 10%
0No experience
3Has experience
6Previously occupied an important position in a blockchain project
8Led a blockchain project
10Led a very successful blotching project
Operation expertience 5%
0No
2Has experience
5Very experienced, has led a team before
Other industry resources 5%
0No
1Has little resource
3Relatively resourceful
4Resourceful
5Very resourceful
Investors and advisors 5%Level of influence 3%
0Not influential
1Influential
2Very influential
3Key figure in the industry
Relativity 2%
0Not relative to the project
1Relative to the project
2Very relative, can provide important insights and resource
Institution investors 5%Depends on the precious invest record
Community and popularitySocial Media and Search Trends 5%Popularity 1%
0Low
0.5Medium
1High
Interactivity 2%
0Low
1Medium
2High
Search popularity 2%
0Low
1Medium
2High
Community 10%Popularity 3%
1Low
2Medium
3High
Interactivity 7%
0Very low
1Low
3Medium
5High
7Very high
PR Events 5%
0No PR events
1Few PR events
3Lots of PR events
5Highly successful PR events
Adjustable factor-10% ~ 10%
Fulfillment tracking 2%
-2Heavily delayed
-1Partly delayed
1.5On schedule
2Ahead of schedule
Github Audit 3%Based on DPRating’s monthly Github audit report
Progress 5%
0Whitepaper only
1Has a demo
2Has a testnet
3Has mainnet and nodes
5Has its own ecosystem
The corresponding criteria for qualification results are as follows:
RatingPointsComment
Aaa[95-105]Overall rating is very high. Qualification Rating is very high. Uncertainty surrounding the project has little impact on its investment value. The project has long-term investment value.
Aa[90-95]Overall rating is high. Qualification Rating is considerably high. Uncertainty surrounding the project has little impact on its investment value. The project has long-term investment value.
A[85-90]Overall rating is relatively high. Qualification Rating is high. Uncertainty surrounding the project is affecting its investment value, The project has mid or long-term investment value.
Bbb[80-85]Overall rating is relatively high. Qualification Rating is high. Uncertainty surrounding the project is affecting its investment value, The project has mid-term investment value.
Bb[75-80]Overall rating is relatively high. Qualification Rating is relatively high. Uncertainty surrounding the project is affecting the investment value, Investors need to closely follow the progress and the overall market and adjust positions accordingly.
B[70-75]Overall rating is relatively high. Qualification Rating is relatively high. Uncertainty surrounding the project is affecting the investment value, Investors need to closely follow the develop progress, the overall market and its rivals to adjust positions accordingly.
Ccc[65-70]Overall rating is medium. Qualification Rating is medium. The token price is dependent on the market condition and positive news. Uncertainty surrounding the project is severely affecting its investment value Invest cautiously.
Cc[60-65]Overall rating is medium. Qualification Rating is low. It has little investment value.
C[50-60]Overall rating is relatively Speculative. It has no investment value.
D<50Overall rating is low.Highly speculative. It has no investment value.