bitcoinmarketjournal.com
Investing in crypto, like investing in any asset, carries some risk. From inexperienced teams to bugs in a smart contract, a lot can go wrong with a crypto project in ways that can drive the price down.
That’s why we developed the industry-leading Blockchain Risk Scorecard.
Where our premiere Blockchain Investor Scorecard measures reward, our Blockchain Risk Scorecard measures risk, so you can invest in crypto with confidence.
In this guide, we’ve analyzed the last year and a half of Blockchain Risk Scorecards to show you the crypto investments our analysts believe have the lowest risk.
How the Blockchain Risk Scorecard Works
Our scorecard rates a crypto investment on a scale of 1 to 5, with lower scores equating to lower risk profiles. (Very important: lower = better.)
Our Blockchain Risk Scorecard breaks crypto risk into six categories:
- Team risk: We dig into the founding team, who is behind it, and their track record of success. How likely are they to scam you?
- Financial risk: We look at how well-capitalized and diversified the project is and whether it promises ever-increasing returns. How likely is it to run out of money?
- Regulatory risk: we assess the likelihood of being sued by the SEC or another governing authority. How likely is it to be shut down or slowed down by the government?
- Smart contract risk: We examine the underlying code and whether the project has undergone a technical audit. How likely is it to be hacked or go offline?
- Traction risk: We look at the number of users and partners. How likely is it to simply not attract enough customers?
- Behavioral risk: We give our opinion on any personal motivation for investing. How many people are simply investing out of greed?
We average up each section, then we average up each section to give a total risk score. In other words, we’re looking for crypto investments that are stable, sound, well-funded, and managed by a reliable team.
Remember: all crypto investments, like all investments, carry some degree of risk. Our strategy is to find quality investments with the lowest possible risk, and hold them for the long term.
Blockchain Risk Scorecard: Our Best Bets
Tether
Tether is transparent about its team, and its latest report indicated that it had over $86 million in reserves. The company is also headquartered in Hong Kong, a country that has been improving its regulatory clarity over the past few years (which rates it slightly above competing stablecoin USDC, headquartered in the United States). We also rated Tether highly because the behavioral risk for the coin is shallow, as most people who invest in Tether do so because they’re seeking the stability and predictability of stablecoins.
- Team Risk: 2.2
- Financial Risk: 1.60
- Regulatory Risk: 2.80
- Smart Contract Risk: 1.33
- Traction Risk: 1.5
- Behavioral Risk: 1.00
- Overall Score: 1.7
Ethereum
As the leading smart contract platform, the Ethereum team has developed a culture of transparency with its users, and its level of integrity is considered the industry standard. Furthermore, Ethereum has over $390 million in liquidity and an average of 422,200 daily users as of this writing. We also rated this project well because it is by far the dominant Layer-1 blockchain, and several hundred of the platform’s smart contracts have been audited by top firms.
- Team Risk: 1.4
- Financial Risk: 2.1
- Regulatory Risk: 3.0
- Smart Contract Risk: 1.0
- Traction Risk: 1.0
- Behavioral Risk: 2.0
- Overall Score: 1.7
Stacks
Stacks is an open-source blockchain built on top of bitcoin that has remained refreshingly transparent about its team, and has avoided significant controversies since its inception. While some bitcoin hardliners don’t appreciate using BTC as a smart contract platform, Stacks has undergone several security audits conducted by reputable firms. We rated Stacks well due to its solid backing and longstanding development.
- Team Risk: 1.80
- Financial Risk: 2.20
- Regulatory Risk: 2.20
- Smart Contract Risk: 1.67
- Traction Risk: 1.70
- Behavioral Risk: 1.50
- Overall Score: 1.80
USDC
USDC is a stablecoin pegged to US dollar assets. It has over $26 million in reserves, and its issuer, Circle, is transparent about its team. Circle is headquartered in the US, where there is still a bit of murkiness around the stablecoin regulatory framework. Despite the uncertainty, Circle has built a stable financial infrastructure backing USDC; it was able to quickly navigate the banking crisis in 2023. Additionally, Circle employs an active bug bounty program where users can report issues in exchange for rewards.
- Team Risk: 1.80
- Financial Risk: 1.80
- Regulatory Risk: 3.70
- Smart Contract Risk: 2.30
- Traction Risk: 1.0
- Behavioral Risk: 1.0
- Overall Score: 1.9
Dai (tie)
Dai is a decentralized stablecoin pegged to the US dollar. There are over 5 billion Dai in circulation backed by collateral worth over $12 billion, making Dai overcollateralized compared to other stablecoins. While Dai has generally remained free from controversy, some questions have been raised about the project’s decentralization. However, Dai received a solid score because it has low behavioral risk, it’s the largest decentralized stablecoin project, and it has held up well during crashes and bear markets.
- Team Risk: 2.20
- Financial Risk: 2.50
- Regulatory Risk: 2.50
- Smart Contract Risk: 1.67
- Traction Risk: 1.80
- Behavioral Risk: 1.00
- Overall Score: 2.0
Aave (tie)
Aave is a DeFi platform that is transparent about its team and has maintained a history free of controversies. Aave’s token makes up 74% of its treasury as of our rating, which introduces some risk, as too much concentration on a single asset can introduce risk if the price crashes. Additionally, Aave is headquartered in the UK, where the crypto regulatory landscape is still evolving compared to other jurisdictions. However, Aave received a solid score because it is a pioneer in the DeFi space and one of the most successful lending platforms.
- Team Risk: 1.60
- Financial Risk: 2.00
- Regulatory Risk: 4.00
- Smart Contract Risk: 1.30
- Traction Risk: 1.30
- Behavioral Risk: 2.00
- Overall Score: 2.00
Cardano
Cardano is an open-source smart contract platform that has exhibited integrity since its founding. Cardano is much slower to release than other L1s, but it claims that this allows for more testing, leading to increased stability and reliability. However, it lags behind Ethereum, and its holdings aren’t notable or well-diversified. Overall, Cardano received a solid score because it has long-term traction, a strong community of true believers and a robust bug bounty program.
- Team Risk: 1.5
- Financial Risk: 2.6
- Regulatory Risk: 2.17
- Smart Contract Risk: 2.17
- Traction Risk: 1.67
- Behavioral Risk: 2.0
- Overall Score: 2.02
Blockchain Risk Scorecard: Our Worst Bets
While the above blockchain projects are worth looking into for potential investors, we recommend avoiding projects that rated highly on our risk scorecard (remember: higher = worse). The three highest-rated investments to date:
- Shiba Inu exhibits high risk because its team is completely anonymous, and it has been in the spotlight multiple times due to controversies, one of which involved the project lead clashing with team members who accused him of planning a hostile takeover.
- Dogecoin is risky because it has yet to publish any financial reports, and many seasoned investors have warned against investing in meme coins like Dogecoin.
- Lastly, we recommend avoiding Ripple because the SEC has brought a lawsuit against the network, alleging that it has conducted unregistered security offerings. Additionally, it’s a privately-held blockchain, which could lead to knowledge they have that you don’t.
Investor Takeaway
Our Blockchain Risk Scorecard is a great tool to help you make the best long-term investing decisions. You can download it and fill it out yourself, or you can become a Premium member and browse our library of Risk Scorecards for all the top crypto tokens.