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Rating Model

What is a rating?

An impartial and objective analysis is critical for evaluating the risk and potential performance of a crypto asset

A rating is one tool investors may decide to use when making investment decisions about crypto assets. Crypto asset ratings as assigned by CAR are our forward-looking opinions about risk of investment in different crypto assets. Our ratings express our considered opinion about the ability and willingness of a crypto asset issuer or company to execute its proposed business plan successfully. Through the ratings we try to capture the investment quality of a crypto asset, and the risks involved from different perspectives such as legal, business, technical and financial. We aim to bring transparency to the crypto markets through our ratings framework, research and insights, supported by highly capable analysts.

What a rating is not?

A rating is not an investment advice

CAR's assigned crypto asset ratings are not an absolute measure of likelihood of success of the proposed plan for which the crypto asset is being issued. Since there are unforeseen future events and developments, the assignment of the ratings is not an exact science. These ratings should not be treated as guarantees or as exact measures of the probability of success of the business plan. Ratings are not recommendations to buy or sell or hold a particular crypto-asset or token, nor are they a guarantee that default will not occur. In addition, a rating does not comment on the suitability of an investment for a particular investor in a particular crypto-asset. A rating can be considered as one piece of information an investor may consult before the investor conducts due diligence about a crypto asset.

Why do we need ratings?

Dearth of crypto expertise and fraudulent ICOs make it difficult to separate the wheat from the chaff

Crypto asset ratings can play a useful role in enabling companies to raise money directly from investors by issuing crypto assets. Investors and other market participants may use the ratings as a screening vehicle to match the relative risk of an issuer or individual crypto asset issuance with their own risk tolerance in making investment and business decisions.

Sheer volume of ICOs makes it difficult to identify the promising ones

According to various estimates, there were an average of 5-6 Crypto Asset issuances every day in 2018

High risk investment

Crypto assets are high risk propositions for investors as there are no trusted middlemen like an investment bank or VC

Fradulent ICOs

Due to unregulated nature of the industry fraudulent ICOs have been prevalent

Limited Information

Except for a whitepaper, not much information is initially disclosed about a crypto asset

CAR's Rating Framework

A well-defined rating framework, periodically updated with back testing results

Our ratings opinions are based on analysis by experienced professionals, who evaluate and interpret information received from the crypto asset issuers and other available sources to form a considered opinion. CAR’s analytical rating framework is divided into four risk categories to ensure salient qualitative and quantitative issues are considered. The scores and commentaries are provided by different groups of internal and external analysts.

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People involved in the rating process

The best of the fighter jets needs the best of the pilots

Junior Analysts (JA) These are analysts who are selected based on their expertise and experience of dealing with crypto-assets. For any rating project, we choose one junior analyst for each of the four risk buckets to rate a particular crypto asset (i.e. a rating process is initiated by a group of four junior analysts).

Senior Analysts Similar to the JA, we select one Senior Analyst (SA) from each of the four risk buckets who review the score and commentary given by the JAs. SAs also prepare the write-up for their respective risk categories, which are consolidated in the final rating report.

Lead Analyst A Lead Analyst (LA) has enough overall expertise in the crypto-asset field to oversee a rating project. CAR assigns one LA to to every project. The LA reviews output coming from the senior analysts, provides feedback and is prepares the consolidated rating report.

External Analysts We expose a subset of the rating parameters to registered and approved External Analysts (EA). CAR makes effort to ensure that relevant external analysts are selected to provide scores for rating a particular crypto asset. This is ensured by a mapping algorithm, which maps the profiles/ competencies of the external analysts with the domain of a particular crypto asset.

Review Committee A Review Committee (RC) consists of two experts who review the final rating assigned and the rating report. A rating is considered final only when it is approved by the RC.

Rating Governance Structure

Adhering to sound principles of rating governance is critical to earning the trust of key stakeholders and ultimately to our performance goals

At CAR, we are strongly committed to the highest standards and ethical practices when we assign a rating to a crypto asset. We take extreme care to ensure that that right people are assigned the right responsibilities and everybody discharges his/ her responsibility within the ethical framework as set by the company. We have implemented a layered rating governance structure and all the parameter scores are stored on the blockchain for auditability.

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AAA

INVESTMENT GRADE

A Crypto Asset rated 'AAA' has the highest rating assigned by CAR. In CAR’s opinion, the issuer is extremely well positioned and resourced to deliver on its strategic objectives in a timely fashion. Issuer has the right technical, financial, legal expertise to navigate hurdles most effectively and execute on its product/solution roadmap.

AA

INVESTMENT GRADE

A Crypto Asset rated 'AA' differs from the highest-rated Crypto Asset only to a small degree. The issuer is well positioned and resourced to deliver on its strategic objectives. Issuer has the right technical, financial, legal expertise to navigate hurdles effectively and execute on its product/solution roadmap.

A

INVESTMENT GRADE

A Crypto Asset rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances, economic and regulatory conditions than Crypto Assets in higher-rated categories. However in CAR’s opinion the issuer is well positioned and resourced to deliver on its strategic objectives even in the face of external hurdles.

BBB

INVESTMENT GRADE

A Crypto Asset rated 'BBB' in CAR’s opinion has the right set of fundamentals but a level of expertise in various aspects that is lower than companies with higher ratings and hence external hurdles in the form of financial, regulatory or technical challenges are more likely to lead to a weakened capacity of the issuer to deliver on its strategic objective

BB

SPECULATIVE GRADE

A Crypto Asset rated 'BB' is less vulnerable than other speculative Crypto Assets (BB/B/CCC/C). In CAR’s opinion the issuer currently has the resources to deliver on its strategic objective however, when faced with external hurdles in the form of financial, regulatory or technical challenges, in spite of its willingness, it might not have the right level of expertise to navigate through them

B

SPECULATIVE GRADE

A Crypto Asset rated 'B' is more vulnerable than Crypto Assets rated 'BB', but in CAR’s opinion the issuer currently has the resources to deliver on its strategic objectives but financial, technical or regulatory challenges will likely impair the issuer's capacity or willingness to meet its commitments.

CCC

VULNERABLE GRADE

A Crypto Asset rated 'CCC' is currently vulnerable, thin on resources and is dependent upon favorable business, financial, and economic conditions for the issuer to deliver on its strategic objectives. In CAR’s opinion, in the event of any financial, regulatory or technical challenges the obligor is unlikely to have the capacity to meet its commitment.

CC/C

VULNERABLE GRADE

A Crypto Asset rated 'CC/C' is currently highly vulnerable. eIn CAR’s opinion, the issuer does not have the resources or expertise to deliver on its strategic objectives. In certain cases the strategy itself is faulty and roadmap not clear. The 'CC' rating is used when CAR expects default to be a virtual certainty, regardless of the anticipated time to default.

D

DEFAULT

Default and extremely unlikely to recover. Non-existent strategy and roadmap.