



DRC Blockchain Project Risk Rating Framework





Universal Version

Version 1.0

Jan.12, 2018





Abstract

The extensive application of new technologies brings not only shocks to the traditional technical framework, but also profound transformations to social production and public life, resulting in unprecedented transformations across various sectors of our society. Along with the emergence of new sectors, related authorities need to keep strengthening their competence and accelerating the development and application of new regulatory technologies. The rapid rise of new technical innovations, with blockchain technology as a typical example, currently poses a challenge in this regard --- the digital asset and the cryto-token economy encounter a dilemma in which they are either strangled by regulation, or fall into chaos without it. As regulation is indispensible to innovation, it will be a major topic in the future as to how regulation can facilitate and be balanced with innovation to restore a rational, regulated, and sustainable market.





Upholding the RegTech concept of “proactive, operational and functional regulation”, the DRC community were learning from the traditional model for risk monitoring, management and assessment, and making bold attempts and innovations with the help of blockchain technology and distributed business model. After six months of such relentless exploratory efforts, a distributed project rating framework has been devised specifically for the blockchain sector, which comprises 109 indicators grouped into five categories. Under this framework, project risk assessment follows a structured, standardized and transparent pattern, measuring risks with a set of “gauges”. Meanwhile, it popularizes high-end and high-quality professional services by pooling professional resources from different sectors and positions, and sharing them on an open, shared, and self-governed community platform. More technology start-ups will thus be able to develop under a system that is ever more regulated and more standardized.

This Blockchain Project Risk Rating Framework V1.0 released by the DRC community is a universal version. The rating model and indicators in it will be further refined in the future. Also, we encourage more teams with stronger expertise to together explore evaluation methodologies in the field of technical innovation, and to create and safeguard a sound environment for this field.





DRC Distributed Rating Model

The distributed rating model as adopted in the DRC community is similar to the business pattern of crowdsourcing. It inspires those with the expertise and working experience on blockchain to join project due diligence, project rating and industry research on the open, shared, and self-governed DRC platform. Marking a break with the traditional centralized service model, this distributed rating model produces rating outcomes that are more impartial, transparent, and credible.









Specifically, based on the DRC risk rating methodology for blockchain project, the complicated and professional due diligence task for a project is divided into several assignments that respectively assess the team, project, technology, solution, and asset model. Community volunteers may take any one or several of these assignments, and together complete the required risk rating work. The DRC rating model will then automatically collect and calculate these separate grades, and get the preliminary project rating by mapping. The final project rating will be reached after considering multiple opinions from experts reviews, dispute arbitrations, and voting among DRC members.





Blockchain Project Rating Framework

This framework covers five assessment categories, which further break into 22 sub-categories for a total of 109 indicators, as shown in the table below:

Category Weight Sub-category Weight Number of Indicators Project Overview 16% Project outline 22.5% 8 Project team profile 20% 6 Approval rate on capital market 12.5% 3 Project promotion 22.5% 2 Project popularity 22.5% 3 Project Team 26% Founder’s profile 49% 10 Core management team 25% 5 Core development team 26% 5 Business Plan 20% Market analysis 28% 4 Solutions analysis 34% 4 Project governance structure 18% 3 Information disclosure & risk management 20% 4 Technical Solution 20% Blockchain technology 40% 10 Application novelty 6% 1 Technical applicability 6% 1 Technical maturity 16% 2 Technical soundness 32% 7 Asset Model 18% Token information 20% 8 Token allocation plan 24.5% 8 Token issuance model 20% 5 Token liquidity 11% 5 Asset structure design 24.5% 5 Total 100%



109





Project Rating and Risk Levels

This DRC universal version V1.0 sets four general levels of project risks --- low, medium, high, and not recommended, as defined in the following table:





General Risk Level Description Low Promising project with strong competitive edge on the market, sound management, credible information disclosure, open-sourced & up-to-date code, strong development & operation capacity, bright prospect, and outstanding resilience to major internal & external negative factors. Medium Project with adequate competitive edge on the market, good management, credible & timely information disclosure, proper development & operation capacity, and adequate resilience to major internal & external negative forces, yet to some extent vulnerable to potential internal & external negative factors. High Project with barely acceptable or poor market performance, average management, credible yet untimely information disclosure, difficulties in development & operation, and uncertain prospect, and vulnerable to immediate deterioration upon the impact of potential internal or external negative factors. Not Recommended Project with poor management, stagnant development, stumbling operation, overall project failure, false information disclosure, and possible existence of fraud.





The rating as obtained under the above DRC framework will be mapped into 10 levels of project rating. Also, by mapping this project rating with the above general risk levels, different project risk levels are obtained.





Project Rating Grades Project Risk Level AAA [90,100] Low risk level (very low) AA [80,90） Low risk level (low) A [70,80） Medium risk level (low) BBB [60,70） Medium risk level (high) BB [50,60） High risk level (high) B [40,50） High risk level (very high) CCC [30,40） Not recommended CC [20,30） Not recommended C [10,20） Not recommended D [0,10） Not recommended





Cases of Application:

To verify its methodology and model for project rating, the DRC community had arranged multiple due diligence tasks with its members, covering projects such as COSMOS, BTS, EOS, IOTA, BUllOCK Chain, Loopring, Ink, Primas, Cybex, and Maker. Also, several offline symposiums were held to discuss the outcome from these due diligence missions and share best practices and experiences. Below are a number of projects applying the DRC blockchain project risking rating method:









About the DRC Community

The DRC community, operating in compliance with related regulatory policies, is dedicated to building itself into a distributed professional service platform with international presence. It will offer a wide range of professional services covering industrial research, due diligence, project rating, information disclosure, risk monitoring, and automated audit. The development of DRC community will be steered by Ms. Yang Lin, the initiator of this community who once served as partner of EY in financial transformation and innovation, and subsequently as head of credit and risk solution in IBM.. We welcome friends interested in the blockchain sector to join us and together enable the regular and sound development of this sector.





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