Framework
Explaining the methodology of our ratings
Our ratings methodology seeks to facilitate long-term investor decision-making. Therefore, it draws on years of research into the crypto market and the methodology of other investors and players in the crypto industry. Our framework also aims to be transparent, impartial and replicable to the most diverse projects in the market. It consists of 10 criteria organized into 4 groups: innovation, ecosystem, tokenomics and security.
Each of these groups has the average score of its criteria, which ranges from 0 to 10. The token's final score is formed by a weighted average of the scores from these groups: tokenomics and security have a weight of 3, while innovation and ecosystem have a weight of 2. For CryptoRanking computation purposes, if two tokens have the same score, we adopted as tie-breaking criteria the group scores in the following order: tokenomics, security, ecosystem and innovation.
The score of each criterion is relative, having as reference (10) the total fulfillment of the requirements of an "ideal" project in this aspect, as defined in this framework. As you may have noticed, even the most blue chip assets on the market hardly exceed 8.0 in our score. This happens for a few reasons:
- Every project comes with trade-offs.
- Tokenomics also have their own trade-offs.
- Even if they bring a disruptive technology, cryptoassets are high-risk investments.
​
Below are our fundamentals for the score in each criterion, organized according to the 4 groups:
1. Innovation:
Diferential + Utility
It measures the impact that the token can bring to the crypto ecosystem and to the economy.
Differential
Here, we consider the aspects in which the project behind the token aims to innovate and the project's performance in that aspect. We take into account the pioneering nature, the disruptive proposal, its relevance to the market, and the project's performance in trying to fulfill that mission.
​
A project rated 10 should bring a new proposal to solve a limitation in the market or a demand from society. It should open up new possibilities for innovation and bring advantages over other crypto projects or traditional solutions that address the same problem.
Utility
In Utility, we take into account how the token fits into the project proposal. There are very original proposals on Web3, but they do not clearly justify the need to create a token instead of adding utilities to existing ones.
The token is the main showcase for investors and, in general, the main reason for a startup to be on the Web3 instead of the traditional market. Unusable tokens are a sign that they were created primarily to be dumped on the market and generate profits without adding a corresponding value.
We consider a token utility scale from 0 to 5:
5. Token fundamental to generate incentives to keep the network running
4. Token generates incentives to improve network performance
3. Token generates incentives to increase adoption
2. Token helps fund the project
1. Token with some marginal function
0. Token of no use
We add to this score other points according to the main functions that the token can add:
. Store of value (a means of conserving wealth over the long term)
. Means of payment (used as currency in the traditional economy)
. Pay for a service (e.g. gas fees)
. Enforce a network's security (as a slashing mechanism in Proof-of-Stake networks)
. Entitlement to a benefit (for example, discounts on an exchange)
. Governance (vote on proposals for the future of the project)
. Receive dividends directly or indirectly (such as the equivalent of one share)
2. Ecosystem:
Adoption + Development
It involves the project, be it a network, a DApp, or a platform, with all the services associated with it.
Adoption
​
For blockchains and DeFi applications, we evaluate the deposited TVL. Specifically for blockchains, we take into account some key crypto adoption metrics. This mainly includes volume, number of executed transactions and active portfolios.
In both cases, we also consider the project leadership according to these metrics. In addition to current numbers, we consider the trend of these metrics. A project with low but increasing adoption can be evaluated as well as a more popular one in decline.
Finally, we take into account the adoption of the solution by other crypto projects and by traditional institutions.
Development
Under development, we collect information regarding the roadmap of the project. A well-evaluated project must have relevant goals that make it more competitive and increase its potential for adoption and market leadership in the future.
We also take into account the trend in developer activity on Github. When possible, we use the report from the Electric Capital for the year 2022 for this assessment.
3. Tokenomics:
Inflation + Distribution + Sustainability
In tokenomics, we assess key components involving the economy behind the token.
Inflation
​
In inflation,we check the expected dilution of the token. For this, the most relevant (but not sufficient) metric is the current supply of assets in relation to the total supply that may be issued. Projects with the highest score are the ones that are closest to finishing their issuance.
Furthermore, we consider the degree of inflation also on a qualitative scale. Tokens can have:
Deflation: when there is a burning mechanism that causes the supply of the asset to decrease over time, as, for example, BNB.
​
Disinflation: when there is a mechanism that establishes decreasing inflation over time, as Bitcoin.
​
Moving equilibrium between deflation and inflation: when there are mechanisms for both issuing and burning tokens, that can prevail at different times, as is the case with Ethereum.
Unlimited Inflation: for tokens that have a fixed or variable inflation mechanism without a limit, as, for example, Polkadot.
Many projects have an ongoing vesting schedule, with the prospect of releasing a certain volume of tokens for the team and investors, while others have temporary mechanisms for withdrawing assets from the market, such as Treasuries or staking contracts. That's why, even if they have a limited supply they may have a lower score than other projects with unlimited supply, if this have prospects for more moderate inflation in the coming years. Minimum-rated tokens would be those with unlimited supply and prospects of massive floods in the market in the future.
Distribution
Distribution takes into account the initial allocation of tokens or other distribution mechanisms. Low scores are indicative of a high allocation of tokens to project insiders.
Other assets have larger portions sold to investors with the aim of financing the project, which, although justifiable, may be excessive. We believe that a good token distribution must conceil the benefits for early contributors with the incentives for those who add value to the system, both in the present and in the future.
A high score requires not only a transparent initial distribution, in a so-called fair launch, but also an effective way to encourage desirable behaviors. Tokens with higher ratings are those that also have its shares to encourage ecosystem expansion, user adoption, and service efficiency.
Sustentabilidade
Nesse critério avaliamos os mecanismos de incentivo trazidos pelo token, e a narrativa que justifica a criação dele. Consideramos sustentável o protocolo que tenha uma geração de receitas que agregue valor ao ativo e/ou outros fundamentos coerentes com a capitalização de mercado atual.
Os tokens perdem pontos no critério conforme apresentem sinais de dependência da manipulação de mecanismos de tokenomics para sustentar ou inflar seu preço.
4. Safety:
System + Market + Decentralization
Includes the main risks associated with technology, the market and the centralization of the project.
System
​
We understand system as the blockchain, platform or DApp associated with the token.
In this criterion we take into account the operating history and the possible loopholes for technical problems. This mainly encompasses hacking attacks, but also outages, bugs and other failures such as excessive congestion.
On the other hand, funds or other guarantees to cover losses is a factor that we consider to increase security for the user. We also take into account the operating time of this system, since older projects on the market tend to have experienced more problems along the way, but also a greater chance of having detected and corrected failures, while younger projects have not passed this "test of time".
Market
Herewe evaluate the performance of the asset in the market. The main component here is the long-term price trend evaluated from past returns.
Projects with a high score are those that had a high appreciation since they hit the market, which indicates a prospect of maintaining this uptrend. On the other hand, they lose points if they show greater volatility, greater falls in bear markets, or problems of lack of liquidity, bringing risks to investors.
Decentralization
This criterion takes into account the risks associated with the centralization the project.We noticed that many teams use the narrative of decentralization brought by crypto without adopting consistent practices in this aspect.
The projects are better evaluated as they give token holders greater control over its future, with freedom to make decisions in a larger scope without censorship by the team.
On the other hand, we deduct points from projects where these governance mechanisms are found to be less effective due to high token requirements.There are even several cases where insiders control a high concentration of tokens, which indicates community governance for appearances only. Other factors taken into account are possible regulatory issues or other risks brought about by the team's practices.
Finally, in the specific case of blockchain tokens, we also evaluate the dispersion of validators and nodes, as they bring greater security to the network. We chose to evaluate this aspect here and not in "System" for a better distribution of weights in the final score.
