Layer 2 Protocol Eligibility
Security assessment
1. Audit
The fund managers will assess the overall quality of programming instructions that have passed an audit from credible auditing companies. Although the auditors have already reported some issues and risks of being attacked, the fund managers will monitor these until the developers fix them.
2. Security Supporting Functions
The fund managers will assess the protocol readiness from security supporting functions, such as a 24-hr monitoring system, bug bounty program/level of bounty value. If the bounty value is greater than 10% of the total value locked, it can be implied that this protocol takes security issues seriously.
3. Access Control
The fund managers will assess the protocol transparency from the disclosed admin access permission. In general, admin can have access to perform upgrading and changing rules in the protocol. Therefore, it will be imperative to disclose such access permission in terms of transparency and completeness. If there are many technical terms that are very difficult to understand, we can consider that the developer is trying to hide something from its users.
The fund managers will also assess the admin access permission to control fund transfer functions, such as freeze and pause function.
Team Evaluation
1. Operations
The fund will assess team expertise from its background and past experience. This assessment can indicate the developers’ operation and problem handling expertise. However, some developers remain anonymous. This can be implied that they try to conceal something.
2. Investment from Institutions
The fund will assess how the institutions support the developers. If the supporting institutions are reputable in some aspects, such as research and development or cooperative investment, this can imply high credibility for the developers.
3. Consultant
The fund will assess the consultant’s background and experience. A reputable consultant can benefit the developers in the long run.
4. Compliance
The fund will evaluate the possibility of improvement from the developer’s regulatory consultant. As DeFi is still a controversial topic nowadays, a protocol or service that can comply with laws should receive more investment from institutions and have a higher potential for growth.
Project Evaluation
1. Business model
The fund managers will assess the implementation concept for the project and determine whether the project can solve business problems or satisfy business objectives. Roadmap/timeline and disclosed future plans will also be assessed. Additionally, the fund managers will consider whether the project is forked from the existing project or offer a better business solution in a new way.
2. Technology
The fund manager will assess the technological framework of the project, tools and processes, and their suitability to address the problems.
3. Operations
The fund manager will assess the suitability of the operational process, such as updating the information process, speed of communication, quality of communication, and completeness of information, etc.
4. Documentation
The fund manager will assess factors relating to documentation that can imply the system's quality in terms of business and software develop
Ecosystem Assessment
1. Tokenomics
The fund manager will evaluate token supply and demand levels, such as token use cases, token distribution period, token inflation and deflation, token distribution between public and private holders, vesting period, etc.
2. Community
The fund manager will evaluate investor participation, quality, quantity, and events relating to the token on social networks, such as Twitter, Facebook, Telegram, etc.
3. Secondary Market Trading
The fund manager will evaluate token trading in the secondary market, which might imply quality and acceptance of the project. This will increase trading channels and allow more investors to access the token, which might help to promote the project. These aspects will be considered along with risk factors, such as token value, turnover rate, price stability, etc.
However, the fund manager can modify this assessment if more significant risks arise, such as development progress, chances of being compromised, vulnerability that might cause financial risk, unfixed issues, etc.
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