Orama Risk Assessment Methodology

Overview

Orama's risk assessment methodology provides a comprehensive framework for evaluating the risk profile of cryptocurrency projects. The system applies a multi-dimensional analysis approach, considering various aspects of a project to generate an overall risk score and risk level classification.

Key Risk Factors

Orama evaluates projects across the following key dimensions:

1. Token Analysis (40% of total risk score)

Factor	Weight	Description
Holder Distribution	10%	Evaluates concentration of tokens among top holders. High concentration increases risk.
Liquidity Metrics	10%	Assesses available liquidity and liquidity-to-market cap ratio. Low liquidity increases risk.
Mint Authority	8%	Checks if mint authority is renounced or controlled by a known entity. Active unknown mint authorities increase risk.
Token Age	5%	Newer tokens typically present higher risk than established ones.
Transaction History	7%	Analyzes pattern and volume of transactions for suspicious activity.

2. GitHub Repository Factors (30% of total risk score)

Factor	Weight	Description
Activity Score	8%	Measures frequency and recency of commits, pull requests, and issues.
Documentation Score	6%	Evaluates quality and completeness of README, contributing guidelines, and code comments.
Security Score	8%	Assesses presence of security practices like bug bounties, audit reports, and security patches.
Community Score	4%	Measures community engagement through stars, forks, contributors, and issue responses.
Maintenance Score	4%	Evaluates how well the repository is maintained, including closed issues and PRs, update frequency.

3. Social Media Factors (20% of total risk score)

Factor	Weight	Description
Account Age	5%	Newer social accounts indicate higher risk.
Engagement Metrics	6%	Analyzes follower growth, engagement rates, and interaction patterns.
Content Analysis	5%	Evaluates promotional content vs. technical updates. Heavy promotion indicates higher risk.
Team Transparency	4%	Assesses whether team members are identifiable with verifiable backgrounds.

4. Additional Factors (10% of total risk score)

Factor	Weight	Description
External Audits	4%	Presence and quality of third-party security audits.
Market Behavior	3%	Unusual price movements or trading patterns.
Legal Structure	3%	Registered business entity, jurisdictional considerations.

Scoring System

Raw Score Calculation

Each factor receives a raw score from 0-100, where:

• 0 represents highest risk

• 100 represents lowest risk

Weighted Score Calculation

The weighted score for each factor is calculated as: Weighted Score = Raw Score × Weight

The total risk score is the sum of all weighted scores, resulting in a value between 0-100.

Risk Levels

Based on the total risk score, projects are classified into the following risk levels:

Risk Score	Risk Level	Description
80-100	Low Risk	Project demonstrates strong fundamentals across most dimensions.
60-79	Medium-Low Risk	Project has some minor concerns but overall positive indicators.
40-59	Medium Risk	Project has significant areas that require caution.
20-39	Medium-High Risk	Project has multiple concerning elements indicating higher probability of issues.
0-19	High Risk	Project demonstrates numerous red flags and high probability of failure or fraud.

Red Flags

In addition to the numerical scoring, Orama identifies specific red flags that may indicate heightened risk regardless of the overall score. Examples include:

• Mint authority retained by anonymous entity

• Extreme token concentration (>50% held by top 5 addresses)

• Locked or restricted liquidity

• Suspicious transaction patterns

• Copied code without attribution

• Anonymous team with no verifiable history

• Extreme promotional activity with unrealistic promises

• Inactive GitHub repository

Red flags are displayed prominently in the analysis results with explanations of their significance.

Interpretation of Results

How to Use Risk Scores

The risk score should be interpreted as an indication of the relative risk profile of a project, not a guarantee of its success or failure. A lower risk score indicates that a project exhibits fewer characteristics commonly associated with fraudulent or failed projects.

Users should:

1. Review the overall risk level as a starting point

2. Examine the scores in each dimension to identify specific areas of concern

3. Pay special attention to any red flags identified

4. Use the risk assessment as one component of a broader due diligence process

Context Considerations

Risk scores should be interpreted within the appropriate context:

• Project maturity (newer projects naturally have some higher risk indicators)

• Market conditions (overall market volatility can affect certain metrics)

• Project type (DeFi protocols vs. NFT projects vs. utility tokens have different typical patterns)

Dynamic Risk Assessment

Orama's risk assessment is not static; scores are updated regularly as new information becomes available. The following events trigger reassessment:

• New GitHub commits or significant repository changes

• Changes in token holder distribution

• Significant price or liquidity changes

• New social media activity

• External audit publications

• Community reports of suspicious activity

Limitations

The risk assessment methodology has the following limitations:

1. Predictive capability: While the methodology identifies risk factors, it cannot predict future events with certainty.

2. Incomplete data: Some metrics may be based on incomplete or imperfect information.

3. Market dynamics: Rapid changes in market conditions may not be immediately reflected.

4. Innovation factors: Novel or innovative approaches may be flagged as risky due to limited precedent.

5. Manipulation: Sophisticated actors may attempt to manipulate certain metrics to appear less risky.

Best Practices

For optimal use of the risk assessment:

1. Review detailed breakdown of scores, not just the overall risk level

2. Consider the context and stage of the project

3. Look for patterns across multiple dimensions

4. Use the assessment as a starting point for deeper research

5. Regularly check for updates to the risk assessment

Common Misinterpretations

1. Low risk does not mean "guaranteed safe investment"

2. High risk does not mean "guaranteed scam or failure"

3. Risk scores are relative, not absolute measures

4. The absence of red flags does not guarantee legitimacy

5. The presence of some red flags does not guarantee fraudulent intent

Orama's risk assessment methodology will continue to evolve as new patterns emerge in the cryptocurrency ecosystem. The weights, factors, and scoring algorithms are regularly reviewed and updated based on historical data analysis and emerging trends.