EVALUAPE: RATING METHODOLOGY

EVALUAPE
EVALUAPE
Sep 3, 2018 · 17 min read

Original article by EVALUAPE

For more reviews and information,please visit https://evaluape.io/share to download EVALUAPE APP.

1 Overview

1.1 Rating Purpose

Blockchain rating is an opinion on blockchain project, team execution capabilities and willingness, and a tool that potential investors can use to decide whether to buy crypto tokens of blockchain projects launched by startups.

The purpose of such rating is to help the development and operation of blockchain market. These ratings reflect independent opinion on the project’s potential, with each opinion based on a unified terminology database. This allows investors to make informed decisions based on information as much as possible.

We provide independent rating and analytical materials in consideration of the specific requirements of each project around the world, and are committed to providing independent and rigorous analysis of high quality information to the market. At the same time, we will update and improve the methodology of the rating process regularly to keep pace with current market changes. This will lead to insightful conclusions that help market participants make more informed decisions.

1.2 Main Rating Method

Based on in-depth analysis of project whitepaper, open source program, team information, community feedback, and in-depth communication with the team, our main rating method is qualitative analysis of the internal and external business environment of the project. That is to say, the evaluators, according to their own knowledge, experience and comprehensive analysis and judgment ability, analyze and judge the contents of each evaluation index based on the in-depth investigation and understanding of the evaluation object, and form a qualitative evaluation conclusion by reference to evaluation standards.

1.3 Basic Principles

Qualitative analysis is used in the rating to get a result combining the analysis of various factors and expert opinions.

The evaluation will focus on the target project and its value in the following aspects: market situation, competitive position, industry development trend, policy environment, business model, team capability, technical skills, token mechanism and emergencies.

1.4 Rating Scale

A rating scale is the basis for the relative assessment, with those who issue a start-up’s crypto-shares then judged based on that attractiveness.

Ratings are prognostic by nature. As a part of its analysis, we review all information that is currently available, and evaluate the potential impact of anticipated future events. For example, while rating a startup, we would take into account the development tendencies of the sector in which the project intends to implement itself. It should be noted that the rating report can be useful for investors and other market participants in making medium and long-term investment decisions alongside other business decisions. However, investment ratings are not a guarantee that the investments will pay off.

Ratings are a reflection of our judgment on the blockchain project. The basic characteristics are:

2 Procedure of Rating System

2.1 Rating Committee

Once obtaining the project information, a rating committee consisting of 3 to 5 professional analysts will be established; one of the analysts will be responsible for the specific execution, and the rest will offer support.

2.2 Basic Background Investigation

Through the preliminary research on the industry of the rating project, the understanding of the open materials of the rating project and the communication with the team, we will understand the current development of the industry, the current market competition, the industry operation, the rating level of related projects, etc., and the project business model, technical capability, token mechanism, team background, financing methods, etc., and conduct in-depth analysis.

2.3.Supervision and Tracking

After releasing the rating level of the rating project, we will continue to supervise and track the project for at least one year to ensure timely and accurate feedback on the rating of the rated project.

3 Rating Method and Application

3.1 Project Rating Elements

We use a complete rating system to analyze project values ​​and risks, and we will continue to make adjustments to factors and proportions based on the industry’s overall situation.

3.2 Description of the Analysis Elements

1) Industry Background

Blockchain industry

In 2018, the data showed that the blockchain project had raised more funds than that of traditionals venture capital and grew surprisingly fast. Traditional emerging industries tend to raise funds through VCs and PEs, while the blockchain industry created the new way of fundin. This can be regarded as a very unique phenomenon in the blockchain industry, which has enabled the industry to form a new ecosystem. However, the blockchain industry is also facing various uncertainties, including policy impacts, industry bubbles, and excessive fluctuations in the digital asset market. When the overall market performs negatively, it will have a certain negative impact on the project at that time. Therefore, we will score according to the market conditions of the blockchain industry in the near future to reflect the impact of the external environment on the project.

Traditional Industry Background

The industry that the project focuses on has a vital impact on the future of its development, and to judge an industry is good or not, the key is to see whether the industry has a bright future. In addition, the degree of blockchain technical integration with the industry, whether the technology can solve the pain points of the industry, the contribution to the development of the industry also needs to be studied, which are the basis for the decentralization of the project. Of course, if the project itself is to address the pain points of the blockchain industry, it is also acceptable. The basic logic of the assessment is: (1) whether the potential market is large, whether the number of customers is growing, and generally, the market pattern of decentralized or long-tailed industries is more suitable for decentralized business models; (2) whether the promoting factors of the industry sustain and whether the pattern of the whole market has a tendency of continuous decentralization; (3) whether a certain part of the industry can be completely decentralized and form a closed loop; (4) whether the blockchain technology can solved the pain point of the industry at the current stage, improve efficiency, reduce costs, perform safety, prove traceability, and bring value to the industry on chain and off chain; (5) whether the current blockchain technology is suitable for the application of the project in the industry, since the current Blockchain technology is still in early stage, in the its infrastructure is still being constructed, it can not meet the use of many Dapps scenarios, such as decentralized projects combined with more offline data, involving digital identity, offline data uplink and the foundation of basic technologies such as Oracle, which cannot be implemented quickly. However, in the current stage of imperfect blockchain infrastructure, if the project itself can solve the technical pain points of the blockchain technology, it will have better market opportunity, and get more points in the evaluation process.

Competitive Environment

Blockchain-based projects generally face two levels of competition, one is in the traditional model of the industry, and the other is in similar decentralized projects of the blockchain domain. For the first point, since the blockchain itself is a technology that subverts the traditional business model, this competitive factor mainly depends on the trend of the market structure and the possible synergy in the future and to see whether traditional enterprises may become the beneficiaries of the decentralized platform. For the second point,the homogenization phenomenon of some application fields becomes more and more obvious. When such a situation occurs, we will take the global market capacity, the number of competitors, technical differences, team strength, and operation into consideration to comprehensively assess the competitiveness of the project.

2) Business mode

Decentralized mode

In the blockchain cryptocurrency industry, there are three types of blockchain projects: platform-type blockchains (such as Ethereum or Lisk), blockchain-based organizations DAO (Decentralized Autonomous Organization) or CODE (Centrally Organized Distributed Entity), and decentralized application based on platform-type blockchain. Different types of blockchain projects will have different future values ​​and potentials. According to historical data, the overall return of projects with their own chains is generally better, followed by projects that can solve the pain points of the current blockchain technology itself, such as Lightning networks, decentralized storage, etc., and the third choice are various applications based on public chains. Thus, we will consider respectively for different types of projects during the evaluation, and this is closely related to the maturity of the blockchain industry. Therefore, as the blockchain industry matures, our evaluation criteria will be adjusted accordingly.

For the decentralized model, the project needs to be able to operate autonomously without intervention and management. These rules often appear in the form of open source software. When all the programs are set up, the platform will start to operate according to the established rules. In the process of operation, it can also continue to maintain and upgrade according to the actual situation, and conduct constant self-improvement to adapt to the environment around it. At this stage, there are many projects in need of Crowdsale but do not have such independence and integrity. Some need to cooperate with other blockchains. Some business processes have centralized behavior, and even some alliance blockchains expect to do Crowdsale. We evaluate the project’s business logic and overall implementation path based on the requirements of decentralized model independence and completeness.

In addition, we will assess whether the project’s model can realistically solve the current problems and assess whether the project can prove the strong technical reasons for the existence of the protocol and token. Ethereum exists because it enables developers to write smart contract in the short term. ETH is the token that developers need to run smart contract. Zcash exists because it attempts to provide better privacy than Bitcoin in the short term, and tokens allow you to access anonymous protocols. These protocols enable users to take advantage of features that are not available in other protocols today, and tokens motivate users to act differently.

Token mechanism

The emergence of blockchain technology has made open source software a profitable way for the first time — — to burn the tokens, which creates a new profit model for software and may even change the way for companies to make profits. In the case of a pure blockchain project, anyone who uses the services provided by the project will be required to pay a certain fee (often a very small amount) using these tokens. The more people use, the more tokens needed. Because at a certain moment, the amount of tokens is definitely limited, which results in the appreciation of the token price. However, these tokens are often in the hands of project developers and early investors. In order to increase the value of the tokens they hold, those developers naturally have the motivation to improve the project development to attract more people. And those early investors, in order to increase the value of the tokens they hold, have the incentive to promote these projects voluntarily, so that more people can use the blockchain project. Because as more people use the project, the more tokens they need, then the more valuable the tokens are for developers and early investors to earn profits. In addition, different token types may have an impact on the future liquidity of digital assets, such as tokens that comply with ERC20 standards may be easier to circulate.

As the number of projects increases, the use and consumption of tokens become more diverse. For example, the bandwidth attribute of EOS and the gas form of NEO. These economic model behind the token has become more diverse. It should be noted that the project’s token economic model must be self-consistent with the business logic of its own business and help to achieve sufficient incentives for the project to achieve autonomy. In addition, high-quality projects do not necessarily mean that their tokens will certainly add value, so how to judge the appreciation logic of tokens based on business logic and economic models is also an important part of the assessment. We will evaluate the token mechanism of the project. By examining the economic model of the project, transaction pricing, token burning mechanism, and token issuing mechanism, we can understand whether the token can form a complete closed-loop system within the platform, so as to provide appropriate incentives for each participant in the platform and realize the potentials for continuous appreciation within the system.

3) Technical Capability

Product Process

It is now standard practice for the crypto token industry to show the public the progress of the project. If the developer does not release the code, does not display the demo or test version of the product, does not post the background video, or other forms of progress reports, it may indicate that they have nothing to show. Designing a testnet or beta version of the protocol is a way to demonstrate the execution capabilities of the founding team. Process the field version may require a large amount of funds for security audits and other processes, but it does need to demonstrate the enforceability of the founding team. The testnet or beta version is a good way to show that the founding team will be able to implement their vision. Therefore, we will evaluate the project based on the product’s open source, test version and other products in Github.

Technical feasibility

An in-depth understanding of a single blockchain project involves a survey of its business model and technical model, which is a high barrier to knowledge for the ordinary investors. Especially for the knowledge of the blockchain technology, investors will be difficult to understand and can not judge its good or bad. For some of the projects focusing on underlying technology, the excellent design is not only a purely technical issue, but also involves economic and philosophical thinking, such as the token economic model, consensus mechanism, etc., and technology is the means to implement. For the project focusing on industry application, it needs to consider more about how the underlying data structure is combined with the blockchain, and how the overall decentralization through technology. We will assess the project’s authenticity, feasibility and scarcity by understanding the project’s technical framework, technical logic, code management mechanism, and code security review mechanism.

4) Team Background

Founding team

First, the identity of the founding team should be announced to the public before any project raises external funds for the production preparation phase. If the project developer is anonymous or the community does not know this person, the people behind such projects have no risk of losing credibility and are more likely to commit fraud.

In addition, the background of the founding team in the professional field is also an important factor in examining its capabilities. Whether the team has experienced personnel in the blockchain field, what they contribute to the community, whether there are relevant leaders in other industries involved, whether the team work is clear and each of them can be independent, all of the above are crucial to the future value of the project.

At this stage, there are only a handful of core technicians in the blockchain field, and often participate in more than a single blockchain project. Its past project experience and performance are very good reference for judging the technical ability and execution ability.

In general, the requirements of the founders of the blockchain platform are higher than those of traditional entrepreneurs. The team needs strong learning ability and resource integration ability, open thinking and understanding and recognition of decentralization model as well as community culture. Through the understanding of the project team and background investigation, we will determine whether there is a risk of fraud; assess the technical strength and team comprehensive ability; and observe its future development potential to judge the possibility of project success.

Advisory team

Whether the project has a strong advisory team also has a greater impact on the development of the project. If the consultant team has a strong technical background and is the core of the industry, on the one hand, it can give the project better technical and resource support, on the other hand, it also reflects the project team’s own industry influence.

Investor team

In general, projects announce the list of investors who have confirmed to invest. Different from the technical level, legal background, industry and other professional aspects of the consultant team, well-known investors, in addition to financial investment, will rely on their own resource advantages to help and synergize the project.

Financing situation

Financing situation

Crowdsale projects usually have a unit price of each token, a maximum financing amount, and a corresponding token ratio. The project can choose to set a fixed token price, issue tokens based on the amount of cash raised in the Crowdsale, or issue a fixed amount of tokens, and calculate the token price based on the amount of financing. Different crowdfunding mechanisms will have a great impact on the price of tokens and project valuation. For example, two years ago, Crowdsale had a cap and sold a fixed amount of tokens at a fixed price, so the Crowdsale cap was fixed, so it usually sold out quickly, but the price of good projects might be underestimated. However, some projects do not set a financing ceiling in the crowdfunding stage. The uncertainty of the financing volume makes the valuation of the project itself difficult to predict. Investors cannot have relatively certain expectations, which may cause problems such as low token prices.

Some projects have no hard cap, and only a few people invested in crowdfunding. If the project is for the client end, it will not be beneficial for its future product application. For example, BAT completed $35 million in crowdfunding within 30 seconds, but only 185 transactions were successful, more than 10,000 transactions failed, and the Ethereum blockchain continued to be congested, which greatly affected the community’s trust and enthusiasm for the project.

On the other hand, with the development and changes in the blockchain industry, the number of financing rounds has increased, the time interval between each round of the project fundraising is short, and the discounts are largely different. The latter round of investors seems to become the buyers of the previous round of investors. And many project teams will conceal the price and quantity of the previous round of financing, resulting in serious information asymmetry and loss of the latter round of investors.

In addition, the way of Crowdsale is constantly innovating. Many projects canceled the public sales process, and they were distributed directly via exchanges or in the form of airdrops. For example, EOS-based decentralized Wikipedia Everipedia announced the use of airdrops to distribute tokens. Vitalik from Ethereum released a decentralized ICO model, Daico. The innovation of these models has brought great changes to investor participation.

Therefore, the project’s model and transparency have a significant impact on the price of its future tokens, for which we will evaluate in detail.

Distribution Mechanism

The founding team should generally have 10% to 50% of the token and should remain stable for the first 3 years of the project. The key here is that the token owner and founder are consistent and the founder is properly motivated. With too little ownership, the founders will not receive proper rewards. There is too much ownership, and the founders have too much control (especially when these tokens give you power in the network but the founders are not qualified to have them). All founding teams should also maintain a certain degree of transparency in their ownership.

In addition, the distribution mechanism of tokens needs to be consistent with the incentives of the business model.

Past Financing Situation

Whether the project has been financed in the past, what the investor’s situation is, the use of funds and the effectiveness of the project can also indirectly determine the status of the project. Some project teams have already had physical entrepreneurial experience and have received A or B round of financing, proving that their traditional business models and teams have been recognized in the traditional field, and can contribute to the platform in the future. But this contribution is uncertain, and whether the team founder’s energy will be dispersed, whether the traditional company’s shareholders will interfere with the team’s contribution to the platform is unknown, thus we need to consider this issue from both sides.

Future liquidity

When during the Crowdsale, the project will also give the future liquidity of the token, including the time of issuing the token, the time of the listing on trading platform, the trading platform, the lockup period for investors, etc. The investor’s liquidity expectation on the project will affect the future price of the token.

Using Plan of Funds

The project needs to have a clear plan for the use of funds, otherwise raising too much money will lead to some bad habits. Teams in the creation phase should deliver products as efficiently as possible. At this stage, the risk of optimizing the funds raised is too high. And if you raise too much money, you will build an unfair expectation that will breed unhealthy spending habits. (This is not good for the both the founders and investors).

6) Project Operation

Whitepaper Completeness

The whitepaper is the most complete and direct way to reflect the business model and technical capabilities of the pure blockchain project. The clarity and completeness of the whitepaper can reflect how far the team thinks about the project, how well it is prepared, and whether it is actually working on the project.

Website Launching

Before the project Crowdsale, its website will generally be launched. If there is no website, it is difficult to guarantee the authenticity of the project.

Community Operation

Communication between the founding team and the community should be transparent. Transparency is crucial in the crypto world. If a project’s founding team can’t share their thoughts and progress on public channels like Reddit, Slack, Twitter or Bitcointalk, it is a danger signal. And all legitimate projects are actively and openly discussed through social channels.

Community enthusiasm is also a direct feedback to the project. Projects with high community activity generally have great potential, and their token prices will have higher expectations and good liquidity. Now that there has been a fever in the community, the ICOAPE will use certain technical means to identify the authenticity of the community popularity.

Partners

Early projects, especially the Crowdsale project in the application field, can have a good cooperation environment, which plays an important role in the market recognition and later development of the project. There are two main types of cooperation: (1) The project is supported by high-quality platform blockchains and some well-known technical laboratories such as Ethereum and Consensys. In this case, the platform-type blockchain will give the project more technical and resource support, which is very helpful for project development; (2) the application will serve customers in certain fields, which may be from upstream or downstream of the industry, or some in the community. At the beginning of the project, having a relatively clear application of customers or users, which will better verify the commerciality of the project.

Project management mechanism

At present, the regulatory ideas and policies vary from country to country, but most companies that initiate Crowdsale impose strict restrictions on themselves, such as setting up their own foundations and preparing foundation governance regulations. This provides investors with enough trust and transparency.

Lawyer Team

Financial regulators often want to expand their scope of regulation, and the hidden nature of many projects may attract regulatory attention. For example, the United States has enacted regulations for unregistered equity crowdfunding, and those suspected of violating the rules often do not comply with the regulations and do not set any legal obligations for the project sponsor to pay back investors. In fact, project sponsors often explicitly deny these obligations in the release document. At the same time, it clearly indicates or implies investors, and the project has the possibility of profit. The issuers of new tokens generally underestimate the regulatory risks of Crowdsale. If the project itself employs a team of lawyers, a clearer understanding of the risks can avoid many hidden dangers.

Accounting Mechanism

It is generally believed that the funds raised for the project need a trusteeship to store the investment in a trusted wallet; In order to obtain funds in these wallets, multiple private keys are needed, one of which is usually a third trusted custody that does not participate; And the establishment of a legal mechanism, record of some terms is also needed, so as to ensure that there will be no circumstances of carrying money without fulfilling its commitments.

All information in this article is provided for reference only and does not constitute investment advice.


For more reviews and information,please visit https://evaluape.io/share to download EVALUAPE APP.

About us

EVALUAPE is a platform for demonstration and evaluation of blockchain projects. We provide comprehensive database and professional evaluation of global blockchain projects with our extensive experiences, while adhering to the values of community culture, ultimately decentralizing the platform. We desire to become an international, professional and remarkable project evaluation platform.

EVALUAPE

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EVALUAPE

EVALUAPE is a platform for demonstration and evaluation of blockchain projects.

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