fija Safety Score
fija Safety Score description.
fija calculates the fija Safety Score for every strategy.
The fija Safety Score is a tool that provides customers with guidance to be aware of risks associated with strategies. It does this by evaluating the tokens, blockchains, and protocols used in a strategy.
The fija Safety Score evaluates the smart contract risk associated with a strategy. Blockchains, Tokens and Protocols involved with a strategy bear a certain risk of being hacked or fail otherwise. This risk is evaluated in the fija safety score.
Note that this score does not include volatility risks, which always come from the deposit currency. Customers must decide to invest in a token before selecting a strategy, as fija is primarily an earnings product for existing token holders. If there is no desire for exposure to volatile assets, investments in stablecoin- or delta-neutral strategies are available.
The fija Safety Score takes several dimensions and criteria into account, as shown below. The evaluation results in a score on a scale from 1 to 10. A safety score of 1 would indicate a high-risk strategy, while a score of 10 would indicate that a strategy is considered very safe, and the risk of funds getting lost is very low. However, it's important to note that there is never "no risk."
In the following, the components, criteria and ratings will be explained in more detail:
Understand the Components and Scoring
1. Protocols (50% of overall Safety Score)
The Protocol component is critical in determining the safety of an investment strategy, accounting for half of the overall Safety Score. It is evaluated based on the following criteria:
1.1 Total Value Locked (TVL) - 30%
TVL represents the $ value that is currently locked in a specific DeFI protocol. The higher the TVL, the more attractive a protocol is, and the more people are using it. To make TVLs more comparable they are put into perspective with the overall DeFi TVL of the respective chain (e.g. Arbitrum has a TVL of 1.4bn$ and Uniswap has a TVL of 112m$ on Arbitrum and therefore 7.9% of the overall TVL).
Rating (Protocol TVL in % of chain total):
>5%:
10
2.5% - 3%:
5
4.5% - 5%:
9
2% - 2.5%:
4
4% - 4.5%:
8
1.5% - 2%:
3
3.5% - 4%:
7
1% - 1-5%:
2
3% - 3.5%:
6
<1:
1
1.2 Existence - 30%
The years of existence give a good indication how seasoned and battle-tested a protocol is and how many market cycles it survived. The longer a protocol has been in the market the higher the score it receives.
Rating (Years of existence):
>5 years:
10
2 year:
4
4 years:
8
1 year:
2
3 years:
6
<1 year:
1
1.3 DeFi Safety Score - 40%
DeFi Safety is an independent rating organization that rates decentralized finance products for an overall security score based on transparency and adherence to best practices. The scoring is comprised of the following categories: Smart Contracts & Team, Documentation, Testing, Security, Admin Controls & Oracles. The DeFi Safety Score ranges from 0%-100%. (www.defisafety.com/app)
Rating (DeFi Safety Score divided by 10):
Example: Uniswap DeFi Safety Score: 96% --> fija Safety Score: 9.6
2. Coins (25% of overall Safety Score)
2.1 Bluechips
2.1.1 Volatility - 20%
Historical volatility measures how far prices move away from a moving average price. Calculating the standard deviation from the average yields the historical volatility. For the fija Safety Score, the historical volatility for the last 180 days is considered. The lower the volatility, the lower the average price movement of the respective asset.
Rating (Historical volatility in %):
<10%:
10
90% - 110%:
5
10%- 30%:
9
110% - 130%:
4
30% - 50%:
8
130% - 150%:
3
50% - 70%:
7
150% - 170%:
2
70% - 90%:
6
>170%:
1
2.1.2 Market Cap - 15%
The market cap is an indication of the size, maturity, popularity & usage of a coin. To make the market caps of each token more comparable they are put into perspective with the OTHERS market cap (excluding Top 10 Tokens).
Rating (Coin market Cap in % of total MC):
>5%:
10
2.5% - 3%:
5
4.5% - 5%:
9
2% - 2.5%:
4
4% - 4.5%:
8
1.5% - 2%:
3
3.5% - 4%:
7
1% - 1-5%:
2
3% - 3.5%:
6
<1.5%:
1
2.1.3 24h Trading Volume - 15%
Trading volume gives an indication about how much a coin is actively used for swaps and trades every day. The higher the 24h volume, the more attractive a coin is, and the more people are actively using it. To make volumes more comparable they are put into perspective with the overall 24h trading volume (excluding Bitcoin, Tether, USDC, BUSD & DAI) (e.g. the overall 24h trading volume is 33bn$ and BNB has a volume of 1.2bn$ and therefore 3.6% of the overall volume).
Rating (24h trading volume in % of total volume):
>5%:
10
2.5% - 3%:
5
4.5% - 5%:
9
2% - 2.5%:
4
4% - 4.5%:
8
1.5% - 2%:
3
3.5% - 4%:
7
1% - 1-5%:
2
3% - 3.5%:
6
<1.5%:
1
2.1.4 TokenInsight Score - 50%
TokenInsight is a data-driven blockchain institution committed to providing market intelligence, ratings, industry research, and data. The scoring is comprised of the following categories: Roadmap & Progress, Underlying Technology & Security, Token Economics, Token Performance, Team, Partner & Investors and Ecosystem Development. The TokenInsight Score ranges from 0%-100%. (www.tokeninsight-support.gitbook.io/support/methodologies/rating/token-rating)
Rating (TokenInsight Score divided by 10):
Example: Ethereum TokenInsight Score: 82% --> fija Safety Score: 8.2
2.2 Stablecoins
2.2.1 Stablecoin Dominance - 10%
The stablecoin dominance is a representation of the relative market cap of a stablecoin (in %) compared to the total market cap of all stablecoins. The higher the stablecoin dominance, the more popular and more used a stablecoin is.
Rating (Stablecoin dominance in %):
>10%:
10
5% - 6%:
5
9% - 10%:
9
4% - 5%:
4
8% - 9%:
8
3% - 4%:
3
7% - 8%
7
2% - 3%:
2
6% - 7%:
6
<2%:
1
2.2.2 24h Trading Volume - 10%
Trading volume gives an indication about how much a stablecoin is actively used for swaps and trades every day. The higher the 24h volume, the more attractive a stablecoin is, and the more people are actively using it. To make volumes more comparable they are put into perspective with the overall stablecoin 24h trading volume (e.g. the overall 24h trading volume is 46$ and USDC has a volume of 4bn$ and therefore 8.6% of the overall volume).
Rating (24h trading volume in % of total volume):
>10%:
10
5% - 6%:
5
9% - 10%:
9
4% - 5%:
4
8% - 9%:
8
3% - 4%:
3
7% - 8%
7
2% - 3%:
2
6% - 7%:
6
<2%:
1
2.2.3 Collateralized - 10%
The criterion of collateralization is used to evaluate if a stablecoin is backed by e.g. fiat or other currencies (collateralized) or algorithmic. An algorithmic stable coin is not backed by any currency but leveraging multiple mechanisms to maintain its value. Therefore, algorithmic are deemed riskier. This criterion intends to penalize algorithmic stablecoins.
Rating (Collateralized or Algorithmic):
Collateralized:
10
Algorithmic:
1
2.2.4 Peg Stability (6-month price low) - 20%
The peg stability measured in the 6-month low price of a stablecoin gives an indication about the price stability and the peg measures of a stablecoin.
Rating (6-month price low in $):
>0.99:
10
0.94 - 0.95:
5
0.98 – 0.99:
9
0.93 – 0.94:
4
0.97 – 0.98:
8
0.92 – 0.93:
3
0.96 – 0.97:
7
0.91 – 0.92:
2
0.95 – 0.96:
6
<0.91:
1
2.2.5 Peg Stability (6-month standard deviation) - 20%
The peg stability measured in the 6-month standard deviation of a stablecoin gives an indication about how well a stablecoin held its peg and traded around the intended 1$ mark.
Rating (6-month standard deviation):
<0.01:
10
0.005 - 0.006:
5
0.001 – 0.002:
9
0.006 – 0.007:
4
0.002 – 0.003:
8
0.007 – 0.008:
3
0.003 – 0.004:
7
0.008 – 0.009:
2
0.004 – 0.005:
6
>0.009:
1
2.2.6 Bluechip Score - 15%
Bluechip is an independent rating platform that rates stablecoins. The rating focuses mostly around stability, management, implementation, decentralization & governance. In each category the score ranges from 0-1. (https://bluechip.org)
Rating (Average of available scores and multiplied by 10): Example: USDC average score: 0.62 --> fija Safety Score: 6.2
2.2.7 TokenInsight score - 15%
TokenInsight is a data-driven blockchain institution committed to providing market intelligence, ratings, industry research, and data. The scoring is comprised of the following categories: Roadmap & Progress, Underlying Technology & Security, Token Economics, Token Performance, Team, Partner & Investors and Ecosystem Development. The TokenInsight Score ranges from 0%-100%. (www.tokeninsight-support.gitbook.io/support/methodologies/rating/token-rating)
Rating (TokenInsight Score divided by 10): Example: USDC TokenInsight Score: 71% --> fija Safety Score: 7.1
3. Blockchains (25% of overall Safety Score)
3.1 Total Value Locked (TVL) - 12.5%
TVL represents the $ value that is currently locked on a specific blockchain. The higher the TVL, the more attractive a chain is, and the more people are using it. To make the TVLs more comparable they are put into perspective with the overall DeFi TVL across all chains (e.g. the overall DeFI TVL is 50bn$ and Arbitrum has a TVL of 1.4bn$ and therefore 2.9% of the overall TVL).
Rating (Chain TVL in % of DeFi total):
>5%:
10
2.5% - 3%:
5
4.5% - 5%:
9
2% - 2.5%:
4
4% - 4.5%:
8
1.5% - 2%:
3
3.5% - 4%
7
1% - 1.5%:
2
3% - 3.5%:
6
<1.5%:
1
3.2 24h Dex Volume - 12.5%
Dex volume gives an indication about how much a chain is actively used for swaps and trades every day. The higher the 24h volume, the more attractive a chain is, and the more people are actively using it. To make volumes more comparable they are put into perspective with the overall DeFi 24h volume across all chains (e.g. the overall DeFI 24h volume is 3.5bn$ and Arbitrum has a volume of 321m$ and therefore 9.1% of the overall volume).
Rating (Chain Dex volume in % of DeFi total):
>5%:
10
2.5% - 3%:
5
4.5% - 5%:
9
2% - 2.5%:
4
4% - 4.5%:
8
1.5% - 2%:
3
3.5% - 4%
7
1% - 1.5%:
2
3% - 3.5%:
6
<1.5%:
1
3.3 Years of Existence - 12.5%
The years of existence give a good indication how seasoned and battle-tested a blockchain is and how many market cycles it survived. The longer a blockchain has been in the market the higher the score it receives.
Rating (Years of existence):
>5 years:
10
2 years:
4
4 years:
8
1 year:
2
3 years
6
<1 year
1
3.4 Number of Protocols - 12.5%
The number of protocols of a blockchain gives an indication about the overall usage and development attractiveness of a chain. The higher the number of protocols, the more developers are building on that chain, signaling a high number of use cases and users. To make the number of protocols more comparable they are put into perspective with the total amount of protocols of the top 50 blockchains (e.g. the overall amount of protocols is 3.367 and Arbitrum has 184 protocols and therefore 5.5% of the overall amount).
Rating (Number of protocols in % of top 50 total):
>10%:
10
5% - 6%:
5
9% - 10%:
9
4% - 5%:
4
8% - 9%:
8
3% - 4%:
3
7% - 8%
7
2% - 3%:
2
6% - 7%:
6
< 2%:
1
3.5 DeFi Safety Score - 50%
DeFi Safety is an independent rating organization that rates decentralized finance products for an overall security score based on transparency and adherence to best practices. The scoring is comprised of the following categories: Nodes, Node and supporting software, documentation, testing & security. The DeFi Safety Score ranges from 0%-100%. (www.defisafety.com/app)
Rating (DeFi Safety Score divided by 10):
Example: Ethereum PoS DeFi Safety Score: 95% --> fija Safety Score: 9.5
4. Strategy Score (Weighted sum of all criteria and components)
The final strategy score is calculated by taking the weighted sum of each criterion in each category and then taking the weighted sum of the three categories (protocols, coins, chain). For the score of the protocol category there are two additional factors to be taken into account: 1. Aggregator Factor & 2. Complexity Score. The aggregator factor comes into play when multiple protocols are used in sequence (e.g. beefy as a compounder). Since using multiple protocols in sequence increases the risk we take the average of all protocols included in the sequence. And additionally, the complexity score comes into play when multiple protocols are used. The complexity score is a multiplier that gets factored into the total protocol score. The more protocols used, the lower the multiplier and the resulting score:
1-3 protocols:
1
4-6 protocols:
0,9
7-9 protocols:
0,8
10-12 protocols:
0,7
13-15 protocols:
0,6
Access Calculation Methodology & Criteria in a PDF Document
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