Utilizing Security Risk Management to Generate Opportunities and Hedge Against Losses

Kfir Nissan

Every time we ignite and drive our car, we are going through an undesired act of monitoring the dashboard for warnings, why do we that? Because we want to be sure that just before we start driving and throughout the driving cycle the car is in impeccable condition and that we are not risking ourselves or the passengers riding with us.

Managing an investment portfolio is no different. Like monitoring the cars’ dashboard, we too need to have a baseline of security posture to help us asses the risk in opportunities for ourselves and to expose it to our LP. That’s where security rating come in, Valid Network Security Score gives investors and traders a baseline that allows to continuously measure, rate and manage the risk level of investing in digital assets.

What is a security rating?

Security Score by Valid Network grade digital assets security posture by how well it protects the value of your investments. In web3, where everything is digital, every asset is a digital asset, all of the interactions are set between digital entities and are enforced by code written in Smart Contracts, the most basic and crucial assumption is that you cannot decouple the technology from the asset itself.  

Consumer credit reporting agencies review each of us as individuals and assign a credit score by evaluating whether we can protect our financial assets and our ability to return debt. Similarly, a digital asset security rating, reviews a digital asset security posture and assigns a security score by evaluating whether the digital asset can protect its value long term and what is the expected volatility in the short term.

Security risk management is an opportunity!

Valid Network Security Score is a vital point in implementing and executing Crypto, Defi and Web3 investment strategies. Sophisticated investors are getting into Crypto, Defi and Web3 and more institutional investors are taking larger stakes, as a result trading volume are spiking. The growing interest also attract hackers and we see the number of attacks growing month after month.

Therefore, the ability to dynamically quantify the risk allows the investor to identify opportunities, enjoy the market volatility and most importantly trade with confidence.

Getting started with security ratings

Valid Network Security Score provides you thousands of digital asset top-level security rating for free. The top-level rating gives you visibility into the digital asset security posture level and actionable insights.

As investors need more visibility the solution provides a detailed break down so you can see exactly what are the components that structure the score and decide how you wish to implement them into your investment strategies.

The Security Score can be also integrated directly into your system by an API. The API is much more robust with pre-defined data sets that can be consumed by AI models according to more specific quant needs.

The benefits of understand the security posture of digital assets

A recent study showed that picking the right assets and avoiding others is equivalent to generating alpha and hedging against risk.

The study was made on hundreds of tokens over a 3-month period showing clear correlation between investing in high security score assets and the ability to generate alpha and avoiding assets with low security score showed significant hedge against losses.

To receive a copy of the research, contact us.

The art of security rating

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you known either the enemy nor yourself, you will succumb in every battle.”  Sun-Tzu, The art of war

While he was referring to knowing the strengths and weaknesses in military strategy, it can also be considered in context with investment strategy.

Knowing your desired result and the risk you are willing to take, while at the same time understanding the security posture of the various digital assets that are available, allows you to build the right strategy and bit the market.

while if you have a clear strategy but lacking the visibility and the right models to support your investment actions you will sometime win and sometime lose.

The last option according to Sun-Tzu is, if you don’t have a strategy and knowledge, you will most probably lose in every investment cycle.


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