Fundamental Report Overview
High-level description of writing a fundamental report
The fundamental review assess the following qualitative aspects of a protocol:
- What value does the protocol provide, how does it compare to its competitors and how strong is its competitive moat?
- Are the protocols tokenomics well designed, what are its use cases and does it align all stakeholders?
- Is the team behind the protocol well experienced and capable to successfully grow the protocol?
- How well established is the protocols governance and is it designed for the betterment of the protocol?
- Does the protocol have a legal accountable entity, and if yes where?
The value proposition evaluates the unique selling point or in other words the actual value the protocols brings to its users.
This is measured by analyzing the novelty of the solution (was the project the first ever to provide this service, did it improve on others, or is it a fork with little innovation).
Another important part of this section is the competitive moat, which is measured by directly comparing the protocol with its competition (using analytics tools such as Dune or tokenterminal for instance), and by evaluating how important the protocol actually is for DeFi in general (i.e. is it an irreplaceable money lego or maybe somewhere in the middle or towards the top of the stack). Integrations and partnerships are great indicator to measure the importance of a protocol.
As the name suggests, the tokenomics section evaluates the token design and it's use cases.
A first important indicator of a healthy tokenomics is the actual distribution of the token (genesis and right now), as well as the distribution mechanisms, i.e. how is it going to be distributed going forward, does that align all stakeholders.
Moreover, this section reviews what the purpose of the token is, what can it be used for and if it does accrue any value for the token holder.
Evaluating the team is another important piece of the puzzle as it gives us an indication for what can be expected. Is the team well experienced, i.e. did one or several team members already successfully found or lead a company, start-up, or other web3 protocol.
One important aspect of this section is to evaluate whether the team was capable of attracting the right resources, e.g. team members, infrastructure or funds. Being able to attract large and well-known VC's for example can be a promising sign (which does not mean the absence of them is negative).
Governance is an important part of DeFi and hence part of this report. The goal of this section is to find out how robust the governance system the protocol has in place actually is, and whether they serve all stakeholders (e.g. community) or just a few (e.g. developer team).
Hence, this section looks at the process and technology that enable governance. In addition, providing transparency about who holds the keys (smart contract admin keys) is another important piece of the puzzle that needs to be analyzed in this section.
The regulatory section is the smallest paragraph in terms of question and cannot always be answered (e.g. if the DAO is fully decentralized without a legal entity). However, for all protocols that have a legal entity, the raters is required to find out what the legal accountability looks like and in which jurisdiction the company is located at.