Crypto Risk Analysis
Section outline
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Lesson Summary: This lesson provides guidance on the UK Financial Conduct Authority's (FCA) rules for cryptoasset financial promotions. It covers the requirements for financial promotions related to qualifying cryptoassets, emphasising that promotions must be fair, clear, and not misleading. It explains the application of the Consumer Duty for authorised firms and highlights the FCA's objective of reducing consumer harm while supporting economic growth. The lesson also clarifies which entities are subject to these regulations, the definition of qualifying cryptoassets, and potential consequences for non-compliance.
Learning Objectives:
- Understand the FCA’s requirements for cryptoasset financial promotions.
- Identify who is subject to the cryptoasset financial promotion rules.
- Recognise the implications of the Consumer Duty in the context of cryptoasset promotions.
- Learn the criteria for a promotion to be deemed fair, clear, and not misleading.
- Understand the potential consequences of non-compliance with these regulations.
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15 Questions, get at least 12 correct to pass, 3 attempts allowed.
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Record yourself, either as audio, a presentation or face-to-camera to demonstrate your understanding of the DD guidance set out by the regulator and how the firm works to achieve compliance. Explain the purpose of the STOP/GO list on the CRADD.
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15 questions, 15-minute time limit, get 12+ correct to pass, 3 attempts allowed.
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Record a video explaining what you understand of the key business models that make use of crypto assets. This will help to assess your understanding of the different types of assets and how they serve different business models. An authorised manager will review your teach-back and provide feedback.
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Lesson Summary on Tokenomics
This lesson explores tokenomics, the economic structure and design of cryptocurrencies that drive their value. Tokenomics combines principles of supply and demand, examining factors like issuance, distribution, and scarcity to influence a token's price. It covers essential concepts such as supply limitations, staking, token burns, yield farming, and vesting periods for stakeholders. By understanding these dynamics, investors can make informed decisions about the potential value of a cryptocurrency.
Learning Objectives
- Define tokenomics and its role in cryptocurrency projects.
- Identify factors influencing token supply and demand, including token burning and vesting.
- Explain the economic impacts of mining, staking, and yield farming on token value.
- Evaluate tokenomics when assessing the potential long-term value of a cryptocurrency.
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Learning Outcomes:
- Understand the definition of volatility
- Understand what volatility tells an investor about an asset
- Understand how volatility is measured. What is the CRADD volatility model?
- Understand the difference between historical and implied volatility
- Understand the factors that influence price volatility
- Understand how to measure liquidity within cryptoasset markets
- Understand why the unique nature of cryptoassets makes them volatile
- Understand the psychological impact of volatility on inexperienced investors
- Volatility Case Study - Fake ETF Approval Tweet
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This is an On The Job (OTJ) training assignment to be undertaken a a delegated task or as part of a job shadowing exercise. Reference the FP task you have reviewed and explain how your observation improves the understanding or informs the judgement in respect of the clarity/fairness/balance/accuracy of an FP. The FP should receive approval by an authorised manager.
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Learning Outcomes
Understand what we mean by cryptoasset ‘popularity’?
Understand the main measure of cryptoasset popularity - market capitalisation
Understanding the key supply metrics for cryptoassets
Understanding tokenomics & decentralisation
Understanding demand metrics for cryptoassets
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This is an On The Job (OTJ) training assignment to be undertaken a a delegated task or as part of a job shadowing exercise. Reference the FP task you have reviewed and explain how your observation improves the understanding or informs the judgement in respect of the clarity/fairness/balance/accuracy of an FP. The FP should receive approval by an authorised manager.
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Lesson Overview In the cryptocurrency ecosystem, utility refers to the specific function or purpose that a crypto asset serves within its network or platform. Different types of crypto assets—such as utility tokens, governance tokens, and security tokens—each have unique utilities, or use cases, that contribute to their overall value and appeal. This lesson will explore the various types of utility associated with cryptoassets, outline how utility can impact asset valuation, and provide a guide on how to review utility when assessing a cryptocurrency.
Learning Objectives
- Define "utility" in the context of cryptoassets and understand its significance.
- Differentiate between types of cryptoassets based on their intended utility.
- Recognise the impact of utility on the value and functionality of a cryptoasset.
- Learn how to assess and review the utility of a cryptoasset when evaluating potential investments.
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This is an On The Job (OTJ) training assignment to be undertaken a a delegated task or as part of a job shadowing exercise. Reference the FP task you have reviewed and explain how your observation improves the understanding or informs the judgement in respect of the clarity/fairness/balance/accuracy of an FP. The FP should receive approval by an authorised manager.
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This diagram was created with the help of Squire Patton Boggs and Paul Anderson who has significant crypto experience.
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In CP 19/3 the FCA set out its position on cryptoassets in relation to the regulatory perimeter. The Guidance aims to give market participants and interested stakeholders clarity on the types of cryptoassets that fall within the FCA’s regulatory remit and the resulting obligations on firms (in this paper, firms means market participants rather than ‘authorised persons’) and regulatory protections for consumers. It also provides information on those cryptoassets that are outside our perimeter, and what this means for firms and consumers.
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Lesson Summary: This lesson explores nine common vulnerabilities in smart contracts that can lead to security breaches and financial losses in blockchain applications, particularly in decentralised finance (DeFi) platforms. The vulnerabilities discussed include compromised price feeds, reentrancy issues, and unchecked external calls, among others. Students will learn how these weaknesses arise, their potential impacts, and best practices for addressing them through secure coding and rigorous smart contract audits.
Lesson Objectives:
- Identify and describe nine common vulnerabilities in smart contracts, including vulnerable price feeds, reentrancy, and unchecked external calls.
- Explain the potential risks and financial impacts associated with each vulnerability in blockchain applications.
- Understand the importance of secure coding practices and audits in mitigating smart contract vulnerabilities.
- Evaluate real-world examples of smart contract breaches to understand how vulnerabilities can be exploited and avoided.
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Demonstrate your understanding of the scoring model to identify the risk scores of potential customers. To do this you'll need to have read and understood a DD report on the applicant's business.
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This assignment will demonstrate your understanding of the CRADD model and how it is used to assess risk. It is a key tool and underpins how the firm forms an impression on the perceived levels of risk.