More About Crypto Scoring and Ranking
The vast world of cryptos can be segmented into distinct categories, each with its own unique characteristics and purpose.
Primary Categories
We use a combination of four key parameters to generate an aggregate score for each crypto.
Digital Currencies
- Digital Currencies stand as the most prevalent type of cryptos. Their primary role is to function as a medium of exchange, a store of value, or a unit of account.
- Unique FeatureThey operate in a decentralised manner, free from central authority control, ensuring transactions are peer-to-peer.
Smart Contract Platforms
- We use a combination of four key parameters to generate an aggregate score for each crypto.
- Unique FeatureThey empower developers to craft decentralised applications (dApps) on their blockchain, leading to a plethora of use-cases beyond mere transactions.
DeFi (Decentralised Finance) Tokens
- Cryptos that are intrinsically linked with decentralised finance applications fall under this category.
- Unique FeatureDeFi tokens are revolutionising the financial landscape by attempting to replicate traditional financial systems, such as lending and borrowing, on the blockchain in a decentralised fashion.
Utility Tokens
- Unlike typical investment assets, Utility Tokens offer users access to a specific product or service within a platform.
- Unique FeatureThey are not acquired with the expectation of future profits; instead, they unlock certain functionalities or benefits within their native ecosystem.
Other Categories
Beyond the aforementioned crypto categories, there are other significant types you should be aware of:
Privacy Coins
- Privacy Coins are tailored to offer transactions that are both private and untraceable.
- Unique FeatureTheir design prioritises user privacy and anonymity, ensuring transactions remain concealed from prying eyes.
Exchange Tokens
- These tokens are issued directly by a crypto exchange.
- Unique FeatureHolders often enjoy specific benefits on the issuing exchange, including reduced transaction fees or voting rights concerning exchange operations.
Governance Tokens
- Governance Tokens empower their holders with voting rights.
- Unique FeatureThey grant users the ability to influence changes to a particular protocol, allowing for a more democratic approach to project direction.
Key Parameters
We use a combination of four key parameters to generate an aggregate score for each crypto.
Liquidity
- Liquidity gauges how easily a crypto can be traded without causing significant price fluctuations.
- How do we measure it?We employ the Amihud Liquidity Measure. This measure is the inverse of the mean of daily Amihud ratios over a set period.
- Breaking it downThe Amihud Ratio, calculated as the daily return divided by the dollar volume, inversely relates to liquidity. A lower ratio signals higher liquidity. For instance, a crypto with a low Amihud Ratio can be traded in larger volumes without drastically affecting its price, making it a preferable choice for many traders.
Valuation
- This parameter discerns if a crypto is potentially overvalued or undervalued.
- How do we measure it?We use the Network Value to Transaction (NVT) ratio, akin to the P/E ratio in stocks.
- Breaking it downThe NVT Ratio divides a crypto's market capitalisation by its transacted volume. A high NVT ratio might suggest overvaluation, while a low one could indicate undervaluation.
Security
- Security gauges the robustness and safety of a cryptos network.
- How do we measure it?The hash rate of mineable cryptos is our metric, representing the computational power used in mining and transaction verification.
- Breaking it downA robust hash rate denotes enhanced security, implying that substantial resources would be needed to compromise the blockchain.
Adoption
- Adoption evaluates how widely a crypto is accepted and used.
- How do we measure it?We look at the number of active addresses.
- Breaking it downA rising number of active addresses signifies growing user trust and engagement with the crypto.