♨️How to use the CAPED framework for surface DYOR
To sort the researched projects by their potential for being alpha, use the CAPED approach. Analyze and score 4 factors:
1. Capitalization of a project:
0 points: Under $1M
1 point: $1M - $10M
3 points: $10M - $100M
2 points: $100M - $1B
1 point: Over $1B
Small market cap projects have higher potential returns but also higher risk, hence the U-shaped scoring.
2. Activity of traders:
0 points: Under $10K
1 point: $10K - $100K
3 points: $100K - $1M
2 points: $1M - $10M
1 point: Over $10M
Again, trading volume is U-shaped since both low and high volumes can be a sign of risk - low volume means potential illiquidity, while high volume could indicate pump-and-dump schemes.
3. Price Performance:
0 points: Negative performance
2 points: 0% - 25%
3 points: 25% - 50%
4 points: 50% - 100%
1 point: Over 100% gain
A recent excessive price gain might indicate a recent pump, hence a lower score.
4. Engagement inside the community (Twitter/Discord/Telegram users):
0 points: Under 1,000 users
2 points: 1,000 - 5,000 users
4 points: 5,000 - 10,000 users
3 points: 10,000 - 50,000 users
1 point: Over 50,000 users
A larger community might indicate a hype-driven project, hence the inverted U-shaped scoring.
5. Development (Github commits in the last 30 days):
0 points: 0 commits
3 points: 1-10 commits
4 points: 11-50 commits
2 points: 51-100 commits
1 point: Over 100 commits
Continue your DYOR path in the next article: How to evaluate crypto projects.
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