Rebuilding The Investment Ecosystem
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 reviews@baserank.io 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 analysts@baserank.io 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:
Baserank uses both models and gives analysts on the platform the freedom of choice. They can decide either to publish the review for free, make it available to all registered users and get paid by asset issuers. Or they can publish it as premium.
We are agile. We strive to continuously improve everything that we do, including our platform model. It can happen that the model described in this article will evolve into something completely different, better, and more efficient. This applies to the price of our services as well. The prices described in this article are for illustration purposes only.
Chicken and Egg Problem
Customer acquisition is a core challenge for any business. For platforms, this challenge is double thanks to the chicken-and-egg problem. For Baserank this problem is even triple because we are building a three-sided platform with independent analysts, investors and asset issuers.
All three parts are essential to building Baserank investment ecosystem. Investors want to access reliable reviews and ratings published by independent analysts. Asset issuers want to get reviewed by independent analysts and get exposure to investors. Analysts want to publish their reviews on a platform that has a user base of both — investors and crypto asset issuers.
Learn more about crypto assets and specific terms we used in this article — Read our FAQ section.
The worldwide market with bonds and stocks is currently estimated to be around $180 trillion. Rating agencies already cover a big chunk of this market with their ratings. As a new player, it would be very difficult to establish Baserank as an authority in the traditional financial market. That is why we focus first on a niche market of crypto assets which is much smaller, more approachable and currently valued around $200B. Crypto asset investment ecosystem is a sandbox for testing the Baserank model. Once we find the right product-market fit, we will introduce the solution to traditional financial markets as well.
To break down the chicken and egg problem even further, we decided to list all crypto assets for free. We closed partnerships with the top rating agencies and added their crypto asset research and ratings to the platform. The result is a minimum viable product (MVP) where most crypto assets have already received several ratings or reviews. We are presenting this MVP to investors and screening their interest in Baserank. We focus on crypto asset investment funds and publicly known private investors.
We interview investors to understand which rating agencies, analysts or experts they trust. We are screening their interest to learn which crypto assets they are interested in. We compile the results and adjust our next steps. We also ask investors to sign a letter of intent — signalling to crypto asset issuers and analysts that investors are interested in using the Baserank platform.
This will help us create a core investment community. For crypto asset issuers, it is most relevant if there are investors on the platform. Building the core investment community will allow us to offer services to crypto asset issuers where projects can pay incentive fee for getting reviewed. This ratings and reviews will be distributed through the analyst’s channels and to our investment community. Creating an early product is essential for testing out the product-market fit.
After that we will continuously expand on all three sides — analysts, investors, and crypto asset issuers. The whole ecosystem is self-supporting. This means that as the Baserank platform grows, community value increases. The network effects of investors, analysts, and crypto asset issuers are mutually reinforcing. See the scheme below.
Baserank Target Audience
As mentioned above, our focus is now on the crypto asset market. In order to build the core investment ecosystem, we first focus on stakeholders that bring in the most value to the ecosystem. These stakeholders can be divided into three core groups:
Crypto Investors:
Crypto asset hedge funds, investment funds, venture capital funds, private and retail investors. All investors need to understand what they are holding in their portfolio. Baserank will make their job much easier. Furthermore, crypto asset analyses are also very valuable for crypto asset exchanges and businesses operating in the space who are interested to learn more about their customers, business partners or competitors.
Crypto Asset Issuers:
Crypto asset issuers are businesses, financial institutions, and projects issuing crypto assets such as cryptocurrencies, utility tokens, security tokens, stablecoins, or traditional securities such as stocks, bonds or structured finance products. If you are an asset issuer and would like to get listed, click here or send us an email to asset-listing@baserank.io.
Analysts:
Analysts publishing reviews and ratings at Baserank are independent analysts, rating agencies, experienced investors and other individuals who proved to have enough knowledge, skills and experience to evaluate crypto assets.
If you would like to apply to become an analyst at Baserank, send an email to analysts@baserank.io. If you are not an analyst but you would like to nominate someone, send us their contact information instead.
Final word
Rebuilding the investment ecosystem is everything but easy. We will come across many problems along the way. However, we consider solving this problem to be too important not to try. Someone has to do it. Who else if not us?
Send an email to our co-founder Ondrej Pilny — ondrej@baserank.io or reach out him on LinkedIn if you need any help, or if you would like to be part of rebuilding the investment ecosystem. When you contact Ondrej, please do not forget to mention how you found out about us.
