Baserank has a big and ambitious goal. We are essentially rebuilding the global investment ecosystem. Baserank’s Vivid Vision has received amazing feedback. Explaining our Vivid Vision has helped others understand WHY we exist. Then people started asking us HOW we aim to achieve our goals. This article explains HOW do we build Baserank — crypto asset research platform.
Following article will help you understand the problems of traditional rating agencies, Baserank platform model, how we plan to solve the chicken and egg problem, and what is our current target audience of Baserank. It will also help you answer the questions we were getting over the course of the past months from our clients, business partners, investors, colleagues and friends.
Common questions we got asked:
- What is your business model?
- How is Baserank different from other similar platforms?
- How do you make money?
- What is your unique value proposition?
- When I pay for a service, where does the money go?
Traditional rating agencies and their flawed model
Many investors give credit ratings a lot of consideration in their investment decisions. This has enabled credit rating agencies to play a central role in financial markets — a role that many experts see as excessive. Investors take credit ratings into account to help manage their investment portfolios.
The original idea of rating agencies was to make the markets function more efficiently. Rating agencies started as a subscription business where investors paid for the ratings. The business model shifted to the issuer-pay model where the issuers pay for the ratings.
Both business models are well explained in this Quora thread.
Over the scope of years, the whole market with rating agencies turned into an abusive oligopoly where the three biggest global rating agencies control 95% of the market.
This would not be the only problem with the rating agencies. Looking at the market from two perspectives — asset issuers and investors, we managed to identify 3 major problems with the rating agencies.
Conflict of interest — Rating agencies get paid directly by asset issuers whose assets they are evaluating. Asset issuers demand positive rating to attract investors. If the rating agency would assign a negative rating, the issuer can decide not to publish the rating and search for a rating from another rating agency that would assign a more positive rating. This is an obvious conflict of interest and the problem specifically is called rating shopping. The conflict of interest between rating agencies and asset issuers makes the ratings irrelevant for many investors.
Centralized power — Rating agencies hold an enormous amount of power. Downgrading a company can have a drastic effect on its operability. If a rating agency feels like it, it can make a smoothly running business go bankrupt within the blink of an eye. Same for countries. Rating agencies are holding weapons of mass financial destruction.
Following video explains the problem well:
As explained in the video, rating agencies have enormous power. The whole financial sector relies on their work. Countries can turn into chaos after being downgraded to junk status.
Ratings are often flawed — Ratings often turn out to be misleading or flawed. There is a big amount of error in ratings. This is mainly caused by wrong methodologies and due to that fact that the incentives of rating agencies are not aligned with the interests of investors. Credit rating agencies played a significant role at various stages in the American subprime mortgage crisis of 2007–2008. Rating agencies gave their highest ratings to structured finance products worth over three trillion dollars of loans to homebuyers with bad credit and undocumented incomes through 2007.
We do not blame specific rating agency, financial institution or asset issuer for all these problems. We consider the problems to be systematic. To solve this, we have to create a more efficient alternative investment ecosystem. It has to include all parties and align their interests.
Baserank platform model (part 1)
Benefits of Baserank platform
When we were designing the Baserank platform model, we had in mind how traditional rating agencies work. Our goal was to solve the main problems and inefficiencies of rating agencies. Rating agencies together with investment banks play an essential role in the investment ecosystem. That is why building Baserank is essentially rebuilding the investment ecosystem.
Baserank is on a mission to solve the 3 major flaws of rating agencies. Here is how we do it:
Baserank diminishes the conflict of interest
What Baserank model does, is that it delinks the analysts and rating agencies from the company they are evaluating. This allows analysts to be honest, independent and they no longer need to go soft on the company they are analyzing. Asset issuers can not choose who will evaluate them. Investors (Baserank customers and users) choose which rating agencies and analysts they trust and will get paid for evaluating assets. The rewards are calculated for each review based on the attention¹ it receives from investors. Baserank acts as a buffer that prevents conflicts of interests between analysts and asset issuers.
¹Attention — is calculated based on unique clicks on “view more” at each review and unique clicks on reviews links. Please note that not all attention is equal. The attention of an investment fund with $1B assets under management (AUM) is more important for the asset issuer than the attention of a retail investor with a small crypto asset portfolio. Therefore, we will be segmenting the attention of investors into several tiers to better reflect the real utility of our services for crypto asset issuers.
Baserank model decentralizes the power of rating agencies
We aggregate ratings and reviews of multiple rating agencies, analysts, experienced investors and other experts. In this way, we decentralize the power of analysts and rating agencies. In contrary with traditional rating agencies — at Baserank, no single analyst or rating agency can be so powerful to completely shift the opinion of investors. The idea of Baserank is based on the wisdom of the crowd. The crowd of analysts evaluates assets. They all independently decide whether to downgrade or upgrade the specific rating of an asset.
Visit Baserank.io to find reliable crypto asset research and ratings.
Baserank platform offers reliable research and ratings
True understanding comes from looking at a specific problem from as many perspectives as possible. Baserank allows investors to research crypto assets by accessing the opinions of top experts. We believe that the more reviews, from more analysts and experts you read about a specific crypto asset, the greater your understanding will be.
Analysts are continuously scored and ranked based on their social attention score, accuracy and other important metrics. This creates an environment where analysts compete for the attention of investors. They are incentivized to provide reliable ratings, publish updates to their reviews, and follow the project continuously. The Baserank platform mechanism design significantly decreases the probability of rating error.
If you like what we are building, please click and hold the clap button 👏 50 times.
Baserank platform model (part 2)
The Platform Design
In comparison with traditional rating agencies that use mostly the issuer-pay model. Baserank proposes a hybrid model that combines the advantages of the issuer-pay model and subscription model.
Asset Issuer Pays Hybrid Model
At Baserank, asset issuers pay incentive fee for getting reviewed by independent analysts. Analysts get rewarded the majority of this fee as an incentive to publish reviews and ratings at Baserank. Registered users can view the reviews, Baserank tracks their attention and distributes the rewards to analysts proportionally based on the attention each review gets from users.
Here is an example:
Rating as a Service
- Crypto asset issuer pays incentive fee 0.2% of its $30M market capitalization = $60,000 per year.
- The service is subscription-based, meaning that the asset issuer is receiving new reviews and ratings continuously. This ensures that analysts are incentivized to publish updates to their reviews and ratings.
- The asset issuer receives independent reviews from multiple analysts on the platform. Positive reviews and ratings can be used to attract investors, business partners, customers and other stakeholders to the business or a project. Negative reviews are very useful feedback that can lead to the improvement of the business.
Send us an email to firstname.lastname@example.org to get reviewed by independent analysts.
Revenue sharing model
- Baserank retains 30% of the incentive fee to pay for development costs, marketing, salaries and other necessary expenses.
- Analysts get rewarded most of this fee — 55%. We calculate how much attention each review has received in a particular month. Based on this information we calculate how much each analyst gets paid.
- Affiliates and business partners are rewarded 15% for bringing clients.
Send us an email to email@example.com to become an independent analyst at Baserank.
Investor pays model
Analysts can choose to publish their review as a premium review. Users can purchase all premium reviews at a specific asset for $50 per month.
Here is an example of how it works: