Risk Ratings

Start here to understand how Xerberus Risk Ratings work and how you can use them.

What is a Rating?

A Rating is a relative judgment of a group of objectives. For example, one could rate ten apples from the freshest to the least fresh. When doing so, two facts are critical to understand. First, the Rating is based on known or unknown criteria. Secondly, the rating itself only includes those ten apples. It's possible that outside of this collection of ten apples, we will have apples that are even "fresher" than the fresh apple in the rating.

Therefore, when you intend to use a Rating, always ask these two questions:

  1. What are the criteria for the Rating? (If the criteria are closed source, there is no rating but only you putting trust in the provider to be correct)

  2. What is the scope of the Rating? (If the scope is, for example, only one L1 ecosystem, then a Rating from Ecosystem A is not comparable with a separate Ranking of Ecosystem B)

What are Xerberus Risk Ratings?

Xerberus Risk Ratings are a relative grading of tokens within a Layer 1 ecosystem. The Rating informs which token in a given ecosystem is the best measured based on our criteria. The criteria we use are open and easily explored using our WebApp. To understand the Rating Scale from AAA to D, you'll have to look up the Rating Scale.

Xerberus risk ratings are the sum of three sub-risk ratings: price, liquidity, and network.

Each sub-risk rating contains a bucket of data points, the risk scores.

  • Price Risk: Where is the price headed?

    • This sub-risk rating is based on historical price data. In the early version, this rating is primarily made of classic price risk indicators from traditional finance, such as "Value at Risk," among others. In a later version of the risk model, price risk will consist primarily of price cycle estimation. Price cycle estimation will inform you where in the overall cycle you currently are and how strong the cycle is.

  • Liquidity Risk: Where are the tokens circulating?

    • This sub-risk rating is based on the positions of tokens in an ecosystem. The name Liquidity Risk leads to the wrong conclusion that we talk about Liquidity Pools, which we do; however, we also talk about all other tokens and their potential relationship to liquidity. For example, how much supply is impending to the market next week? How many holders are there who only bought but never sold? All these questions are fused into the sub-risk rating of Liquidity.

  • Network Risk: What does the overall network graph look like?

    • This sub-risk rating is an abstraction and aims to capture the "shape of a network." Layer 1 Blockchains and their wallets are effective social networks. People use these networks to send value to each other, thus creating a social graph with the big Dapps like DEXs in the center position of the social graph. The Network sub-risk rating measures this graph and ranks them based on which token has the network graph with the best features. A good feature of a network graph can be a cluster of smart money wallets moving into the network.

Last updated