The Weighted Sum Model is a multi-criteria decision-making method used to evaluate and rank alternatives by assigning weights to various criteria and summing their weighted scores. In crypto investing, it aids in asset selection, protocol assessment, or risk scoring by formalizing complex trade-offs.
Mechanism
This model operates by first identifying relevant criteria for evaluation (e.g., market capitalization, transaction speed, security audits, governance decentralization). Each criterion is assigned a weight reflecting its importance, and each alternative (e.g., a cryptocurrency, a DeFi protocol) receives a score against each criterion. The final weighted sum determines the alternative’s overall rank.
Methodology
The strategic application of the Weighted Sum Model in crypto investment decision-making involves transparently defining criteria and their weights, ensuring objectivity in scoring, and regularly recalibrating the model as market conditions or investment objectives evolve. This methodology provides a structured, quantifiable approach to complex decision processes, supporting institutional portfolio construction and risk assessment in the digital asset space.
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