# Understanding Risk Scores

Oracled provides quantified risk assessments to help you make informed decisions. This guide explains how to interpret risk scores and what they mean for your investment strategy.

## Risk Score Levels

### 🟢 LOW RISK

**What it means:**

* Token shows strong positive indicators
* Minimal red flags detected
* Generally safer for investment
* Lower probability of rugpull or scam

**Typical characteristics:**

* Decentralized holder distribution (top 10 < 20%)
* Locked liquidity >10% of market cap
* Contract ownership renounced
* Verified, audited contract
* Active, transparent community
* Consistent trading patterns
* No suspicious wallet activity

**Investment considerations:**

* Suitable for most risk tolerances
* Still requires due diligence
* Monitor for changes
* No guarantee of profits

### 🟡 MEDIUM RISK

**What it means:**

* Mixed signals detected
* Some concerns present
* Requires careful evaluation
* Moderate investment caution advised

**Typical characteristics:**

* Moderate concentration (top 10 = 20-40%)
* Liquidity 5-10% of market cap
* Some contract concerns
* New token (<7 days old)
* Limited social validation
* Recent volatility
* Unclear team information

**Investment considerations:**

* Acceptable for experienced traders
* Smaller position sizes recommended
* Close monitoring required
* Have exit strategy ready

### 🔴 HIGH RISK

**What it means:**

* Significant red flags present
* High probability of problems
* Danger of loss
* Extreme caution or avoidance advised

**Typical characteristics:**

* Highly concentrated (top 10 > 50%)
* Low/unlocked liquidity (<5%)
* Dangerous contract permissions
* Honeypot indicators
* Anonymous or absent team
* Suspicious trading patterns
* Known scam indicators

**Investment considerations:**

* Avoid unless expert with tiny allocation
* Assume high loss probability
* Exit quickly if entering
* Not suitable for most investors

## Risk Factors Analyzed

### Holder Distribution (Weight: 25%)

**What's analyzed:**

* Percentage held by top 10 wallets
* Percentage held by top 20 wallets
* Number of unique holders
* Holder growth trends

**Why it matters:**

* High concentration = dump risk
* Few holders = manipulation potential
* Declining holders = red flag
* Growing holders = positive sign

**Scoring:**

* 🟢 Top 10 < 20%, growing holders
* 🟡 Top 10 = 20-40%
* 🔴 Top 10 > 50%, declining holders

### Liquidity Analysis (Weight: 20%)

**What's analyzed:**

* Total liquidity in USD
* Liquidity-to-market-cap ratio
* Lock status and duration
* LP provider count

**Why it matters:**

* Low liquidity = hard to sell
* Unlocked = rug pull risk
* Concentrated LP = control concerns
* Declining liquidity = warning

**Scoring:**

* 🟢 >10% market cap, locked 6+ months
* 🟡 5-10% market cap, short lock
* 🔴 <5% market cap, unlocked

### Contract Security (Weight: 20%)

**What's analyzed:**

* Ownership status (renounced?)
* Mint authority (disabled?)
* Freeze functions
* Hidden functions
* Upgrade mechanisms

**Why it matters:**

* Unrenounced = dev control
* Mint authority = inflation risk
* Freeze = honeypot potential
* Hidden functions = unknown risks

**Scoring:**

* 🟢 Renounced, verified, safe
* 🟡 Some permissions, verified
* 🔴 Dangerous permissions, honeypot

### Trading Patterns (Weight: 15%)

**What's analyzed:**

* Volume consistency
* Buy/sell pressure
* Transaction frequency
* Whale activity
* Bot detection

**Why it matters:**

* Manipulation indicators
* Artificial volume
* Coordinated dumps
* Bot trading patterns

**Scoring:**

* 🟢 Organic, consistent patterns
* 🟡 Some irregularities
* 🔴 Clear manipulation signs

### Social & Community (Weight: 10%)

**What's analyzed:**

* Social media presence
* Community engagement
* Team transparency
* Development activity

**Why it matters:**

* Anonymous teams = risk
* Inactive community = abandonment
* No social = potential scam
* Engagement = legitimacy indicator

**Scoring:**

* 🟢 Active, transparent, engaged
* 🟡 Limited but present
* 🔴 Absent or suspicious

### Token Age & History (Weight: 10%)

**What's analyzed:**

* Time since launch
* Price history
* Holder retention
* Previous incidents

**Why it matters:**

* New = higher risk
* History = track record
* Retention = satisfaction
* Incidents = warning signs

**Scoring:**

* 🟢 >30 days, clean history
* 🟡 7-30 days
* 🔴 <7 days or incidents

## Interpreting Risk Assessments

### Reading the Full Report

**Risk Score Section**

```
Risk Level: MEDIUM 🟡
Confidence: High
Based on: 12 factors analyzed
```

* **Risk Level**: Overall assessment
* **Confidence**: Data quality/completeness
* **Factors**: Number of metrics evaluated

**Red Flags** Specific concerns listed:

* 🚩 Critical issues (immediate concern)
* ⚠️ Warning signs (caution advised)
* 👀 Watch items (monitor closely)

**Green Flags** Positive indicators:

* ✅ Strong positives
* 👍 Good signs
* 📈 Improving metrics

### Context Matters

Same risk score, different scenarios:

**Scenario 1: MEDIUM Risk - Acceptable**

* 30-day old memecoin
* Growing community
* Moderate whale concentration
* Good liquidity, locked
* → Manageable risks for experienced trader

**Scenario 2: MEDIUM Risk - Concerning**

* 2-day old token
* Declining holders
* Unlocked liquidity
* Anonymous team
* → Too many unknowns, avoid

**Always read the full analysis!**

## Risk Score Changes

### Improving Scores

Factors that can improve risk:

* Time passing (token aging)
* Liquidity additions/locking
* Holder distribution improving
* Positive developments
* Community growth

### Worsening Scores

Factors that increase risk:

* Liquidity removal
* Whale accumulation
* Holder departures
* Negative news
* Contract changes

### Monitoring

Ask Oracled:

```
"How has the risk score for [address] changed
over the past week?"
```

Track changes to spot trends.

## Using Risk Scores in Decisions

### For Conservative Investors

**Strategy:**

* Focus on 🟢 LOW risk only
* Require locked liquidity
* Prefer established tokens (>30 days)
* Small position sizes
* Exit on risk increases

**Acceptable profile:**

* LOW risk score
* All green flags present
* No critical red flags
* Growing metrics
* Transparent team

### For Moderate Risk Takers

**Strategy:**

* Accept 🟡 MEDIUM risk
* Evaluate specific concerns
* Diversify across multiple tokens
* Set stop losses
* Monitor regularly

**Acceptable profile:**

* MEDIUM risk acceptable
* Understand specific risks
* Have mitigation plan
* Can handle volatility
* Quick exit capability

### For Aggressive Traders

**Strategy:**

* May take 🔴 HIGH risk
* Very small allocations only
* Quick entry/exit
* Constant monitoring
* Accept high loss probability

**Acceptable profile:**

* Fully understand risks
* Micro positions only
* Expert knowledge
* Can afford total loss
* Trading not investing

## Red Flags Hierarchy

### Critical (Never Ignore)

🚩 **Honeypot detected** - Cannot sell 🚩 **Single wallet >50%** - Massive dump risk 🚩 **Unlocked liquidity + withdraw function** - Instant rug 🚩 **Hidden mint function** - Inflation attack 🚩 **Known scam pattern** - Proven fraud

**Action: AVOID**

### Major (High Concern)

⚠️ **Top 10 hold >40%** - Concentration risk ⚠️ **Liquidity <5% market cap** - Exit problems ⚠️ **Unrenounced ownership** - Dev control ⚠️ **Declining holder count** - Abandonment ⚠️ **Zero social presence** - Likely scam

**Action: Extreme caution or avoid**

### Minor (Watch Closely)

👀 **New token (<48h)** - Insufficient data 👀 **Moderate concentration** - Monitor 👀 **Short liquidity lock** - May unlock soon 👀 **Limited social** - Early stage 👀 **High volatility** - Risky trades

**Action: Acceptable with awareness**

## Limitations of Risk Scores

### What Scores DO

✅ Quantify observable risk factors ✅ Identify red/green flags ✅ Compare tokens objectively ✅ Provide data-driven assessment ✅ Alert to danger signs

### What Scores DON'T DO

❌ Predict future prices ❌ Guarantee safety ❌ Detect novel scams ❌ Account for black swans ❌ Replace your judgment

### Always Remember

* Low risk ≠ guaranteed profit
* High risk ≠ certain loss
* Markets are unpredictable
* Scores based on current data
* Can change rapidly
* Do your own research (DYOR)

## Practical Examples

### Example 1: Token A

**Risk Score: LOW 🟢**

Factors:

* ✅ Top 10 hold 15%
* ✅ Liquidity 12% MC, locked 6 months
* ✅ Contract renounced, verified
* ✅ 2,500 holders, growing
* ✅ Active community
* ✅ 45 days old, stable

**Interpretation**: Relatively safe for moderate allocation

### Example 2: Token B

**Risk Score: MEDIUM 🟡**

Factors:

* ⚠️ Top 10 hold 35%
* ✅ Liquidity 8% MC, locked 1 month
* ✅ Contract verified
* ⚠️ 450 holders
* ⚠️ 5 days old
* 👀 Limited social

**Interpretation**: Acceptable for small position with monitoring

### Example 3: Token C

**Risk Score: HIGH 🔴**

Factors:

* 🚩 Top wallet holds 55%
* 🚩 Liquidity 3% MC, unlocked
* ⚠️ Ownership not renounced
* ⚠️ 85 holders, declining
* 🚩 No social media
* ⚠️ 18 hours old

**Interpretation**: AVOID - multiple critical issues

## Best Practices

1. **Always Check Risk Score**: Before any investment
2. **Read Full Analysis**: Not just the score
3. **Understand Why**: Know which factors matter
4. **Monitor Changes**: Risk evolves over time
5. **Combine with Research**: Use as one data point
6. **Match Risk Tolerance**: Align with your comfort
7. **Size Accordingly**: Higher risk = smaller position
8. **Have Exit Plan**: Especially for medium/high risk
9. **Cross-Reference**: Verify with other tools
10. **Trust Your Gut**: If something feels off, it probably is

## Next Steps

* **Learn Analysis Techniques**: [Analyzing Tokens](https://docs.oracled.xyz/user-guide/analyzing-tokens)
* **Master the Chat**: [Using the Chat Interface](https://docs.oracled.xyz/user-guide/using-chat)
* **Review Best Practices**: [Tips and Best Practices](https://docs.oracled.xyz/user-guide/best-practices)
* **Understand AI Training**: [AI Model Training](https://docs.oracled.xyz/getting-started/ai-model-training)

***

**Get your first risk assessment**: Visit [oracled.xyz](https://oracled.xyz) and analyze a token!
