Open Source Analysis Method for Digital Assets
If you are Going to the Moon, Bring your Spacesuit
I’ve made a simple tool called SPACESUIT X for analyzing the investment merits of coins, tokens, ICOs and similar projects.
What is it?
SPACESUIT X is a rating scale of 0–100 which is based on an acronym for 10 categories that investors / analysts might consider regarding tokens, coins and ICO offerings. The tenth category is “X Factor” which allows analysts to assign their own criteria for evaluation.
How does it work?
The default value for each category is 10. Analysts score each category on a 0–10 scale with 10 being the highest. For example, if an analyst felt Bitcoin had very good security they might rate it a 9 or higher.
Each category is then added up and totaled. This gives projects a final score of 0–100 with higher scores being better. The default weighting for each category is 10…so 10 points each, 10 categories = 100 total possible points. Analysts who wish to weight a category differently can do so. For example if someone thinks security should be 20% of a project, not only 10% of the analysis they can change the weighting to 20, adjust the others to total 100 and this will be reflected in the other categories and final totals.
Alternatively, analysts can keep the default weighting and apply thier own additional screens/ metrics. For example: “Use the default weighting of 10 for security but I won’t consider any project which has a security score of less than 7 and an overall score of below 75.”
There is a great deal of flexibility for analysts to adjust the system for thier own preferences. For example the section called “Community & Management” only lists criteria which should be considered…this analysis protocol doesn’t make a judgement call on whether something is good or bad, that is up to the individual analyst. So if an analyst strongly prefers open source versus a corporate model they can reflect that in thier rating. One analyst might place a heavy importance on a fixed supply, another may rate a coin highly on Accounting & Legal based on the jurisdiction that they are in. This allows each analyst to rate each category based on thier own preferences.
— How secure is this? Security is the foundation of any crytpo or blockchain project. Factors to be considered are the security of the blockchain being used, centralization, control and an analysis of attack vectors on the chain, coin, project and any related smart contracts.
— What are you participating in with this token or coin? What portion of earnings or equity of a project does my token represent (if any)? Have you purchased a security? An app API key? A share of future of revenue? Have you simply donated to a non profit tech foundation? What portion has been diluted and how? How fair and transparent was the issuance process?
Accounting & Legal
— How are holdings calculated? On a public, open blockchain or by a central party? What, if any, is the corporate structure of this project? Is it open source? Are there significant legal risks for any key contributors, managers or entities involved in this project? Is this project legal in the jurisdictions important to you? What user rights (if any) are a natural part of the code?
Community, Management & Team
— Who is working on this project? Is there a community? For FOSS (Free and Open Source Software), who contributes how when and why? Is it open or controlled? For corporate, non open-source projects, who is the team and what is thier track record? Who are the executives behind this? What have they done before? Have they ever managed similar amounts of money and numbers of employees successfully?
— What is the economic size of transactions in this asset? What are the earnings and projected earnings of this project and/ or this part of the industry (if any)? Projected growth rates? Is this being used or bought for something other than speculation? Who is buying? What do they pay? What will those amounts be in the future? Most importantly, how does my token tie to these earnings? (If at all)
Supply & Demand
— Is supply fixed or limited? How many coins or tokens will be issued? How? Who can change this? Who controls large amounts of coins? What is the real market strength and market cap value? Is there enough market depth to actually support significant sales at a similar price or is it too thinly traded?
— What will the project, coin or token be used for? If not usable directly, what is the share of equity it gives you? Is the project a useful application? Does the token represent something else of value? What? How? What does this token, coin or project do? What is the problem solved by this? Do people or will people use it? Why?
Industry/ Institutional Backing
— Are corporations or vcs participating? Do exchanges list this token or coin? Do companies build businesses around this? Does the project have any major industry or non-industry partners? What is the overall market direction? How about for this type of project? Whats the state of the industry? Who is the competition? What is this projects leadership in the space for this use case?
— What are the technical details? If this is using a blockchain does it need one? How much has this been tested? Are the speed and efficiency drawbacks of a blockchain worth it for this project? Why? Is this blockchain open or permissioned? How resistant to censorship is this blockchain? What anonymity features does the tech offer?
— What other factors would you like to include in your analysis? What is the overal thesis? Why will the markets place value on it? What other risks are there?
The X Factor slot is your chance to add any criteria that was missed.
SPACESUIT X ANALYSIS OVERALL SCORE
Security — Score 0–10 ___
Participation — Score 0–10 ___
Accounting & Legal — Score 0–10 ___
Community, Management & Team — Score 0–10 ___
Earnings — Score 0–10 ___
Supply & Demand — Score 0–10 ___
Usability — Score 0–10 ___
Industry/ Institutional — Score 0–10 ___
Technical — Score 0–10 ___
X Factor — Score 0–10 ___
Total Score _____ (0–100)
What is next for the project? Hopefully other analysts will use this method to rate ans explain thier own decisions.
This tool / project is published under the Creative Commons license and is free and open source. I’ve tried to make it flexible enough for anyone to use and publish an analysis. Hopefully the tool will be useful to some in the community. You are welcome to use and adapt as you see fit. Check out the tool at spacesuitx.org.
Hopefully this tool will be useful. Feel free to use it in your own analysis. Professionals, funds, service providers and others are welcome to use this and alter at will.
Bruce Fenton is the CEO of Chainstone Labs & Atlantic Financial. He has been in the investment management industry for over 25 years. Bruce is a board member of the Bitcoin Foundation, Medici Ventures and is the host of the Satoshi Roundtable.