♨️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.