Stable Digital Assets Evaluation Standards

It can be said that there are currently many stable digital assets on the market and they can use many different protocols to anchor their value and maintain their stability with a certain currency, such as the US dollar (USD). In fact, the protocol and mechanism are only a part; the way the protocol operates brings real value to a stable digital asset. We have witnessed many projects with very complete protocol theories and algorithms, but when operating that protocol, many uncontrollable risks appear (For example, UST).

Therefore, before accepting any stable digital asse as collateral for VNST, we establish a set of strict, clear, and objective evaluation standards. This set of standards not only considers theoretical factors but also comprehensively evaluates how stable digital asses operate in practice to ensure the stability and safety of the ecosystem.

The set of standards will include 4 categories:

  1. Finance

  2. Management

  3. Security

  4. Legal

Finance

1. Reserve

  • Collateral: We evaluate the collateral of a stable digital asse both on-chain and off-chain. On-chain is usually a cryptocurrency or other crypto asset stored directly on the blockchain. Off-chain is usually a physical asset such as fiat, commodities, bonds, etc.

  • Collateral Ratio: This is an assessment of the ratio between the value of the collateral and the value of the stable digital asset. The higher the collateral ratio, the more reliable the stable digital asset is, because a higher collateral ratio means there are more assets to secure the value. This ratio changes based on the volatility of the collateral.

  • Collateral Quality: VNST evaluates the quality of collateral assets through their volatility and liquidity. Assets with low volatility and abundant liquidity will be evaluated higher.

  • Mint Mechanism: This is the process of issuing more stable digital assetttt to maintain the value at the maximum stability level. VNST focuses on the requirements when minting that stable digital asse, how Minting will take place, and whether there are any costs when doing so.

  • Redeem Mechanism: This is the process of converting stable digital asses into basic collateral assets to maintain the value at a minimum stable level. The evaluation method will be the same as the Mint mechanism.

2. Liquidity

In times of great volatility, users often tend to store highly liquid stable digital asses to minimize the risk of loss and value fluctuations. We will rely on this condition to evaluate the quality of a stable digital asset.

  • Relativity: When trading, if the stable digital asset has high liquidity and is more commonly used, the relativity when converting between that stable digital asset and other assets will be even better.

  • Sustainability: If a stable digital asset relies solely on deposits to maintain its appeal and profitability for users, then when profits decrease or disappear, the amount of money in the stable digital asset pool will decrease as users withdraw money from the pool.

3. Longevity & Market History:

Stable digital assets that have existed and been used in the market for a long time are often better able to maintain their value and are more trusted by users.

  • Supply: Atable digital assets with higher market capitalization will create greater trust in terms of security. Moreover, when there is a large capitalization, stable digital assets often have rewards for those who find vulnerabilities, thereby making the security of stable digital assets even tighter and safer.

  • Operating Time: The lifetime of a stable digital asset fully demonstrates the security and sustainability of a project. According to the “Cindy Effect”, the longer the lifetime, the better the reliability and security, because the project will often have to survive market fluctuations, hacker attacks, and legal and regulatory troubles. Volatility: VNST evaluates the volatility of that stable digital asset in the past, the frequency of fluctuations, how long those fluctuations have occurred and how long it takes for the stable digital asset value to recover.

Management

Management in digital finance is important and plays a key role in ensuring the trustworthiness of stable digital assets. However, this depends on many factors within how organizations operate and control them.

  • Transparency: Asset governance processes need to be transparent, allowing people to understand how stable digital assets manage and allocate their assets.

  • Wallets: All information about Wallet addresses that own large amounts of stable digital assets must be clear, including which organizations and individuals, and why, and for what purpose.

  • Power and Process: Power is expressed in the ability to influence and make decisions that affect change and development, through operators or the community. Meanwhile, the process is how those decisions are made – including specific steps, principles, and mechanisms to ensure transparency and efficiency.

  • Governance: VNST reviews how the issuer controls access to the system’s source code and what governance-related policies the issuer uses and adheres to

  • Risk Management: Whether the project is decentralized or centralized, we are interested in how the issuer manages the risks they may encounter.

  • Identity: Transparency about the identity and location of those who develop and control the stable digital asset system will be a plus for VNST.

Security & Auditing

While it cannot be guaranteed to be completely accurate, having the system audited and audited will significantly reduce the possibility of security risks for stable digital asset.

  • Auditing: It is important to determine which auditing firms have reviewed the source code and when. Are there ongoing or one-time audits?

  • Smart Contracts: What source code is being used, and how much of it can be reused from proven protocols?

  • Bug Bounties: Are there any programs and rewards for finding vulnerabilities in the project?

Legal Terms

VNST is concerned about whether the stable digital asset is subject to strict regulatory and legal scrutiny. What risks does the project face when it comes to sanctions and government actions?

  • Decentralization: Is the stable digital asset controlled by a centralized organization or is it just source code?

  • Censorship: Can it be censored at will, and assets frozen?

  • Privacy: How much privacy does the coin provide and is it easy to use for money laundering and illegal activities?

  • History: Has it faced legal pressure before? And to what extent (e.g., lawsuits and settlements)?

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