# How the Bankless Score is Calculated

*Author: Bankless*
*Published: Dec 11, 2024*
*Source: https://www.bankless.com/how-the-bankless-score-is-calculated*

---

The **Bankless Score** combines three main factors—risk, sentiment, and diversification—along with transaction activity to measure your financial performance in the crypto, DeFi, and overall bankless ecosystem. Here’s how each component works... 

---

### **1. Risk Calculation (R): How Safe or Risky is Your Portfolio?**
Risk depends on the types of tokens you hold and their proportions. Each token type is assigned a **weight** based on its risk level:

- **USD (Stablecoins):** 0.1 (safest)
- **Bitcoin/Ethereum:** 0.3
- **Blue Chip Tokens:** 0.6
- **Other Tokens:** 1.0 (riskiest)

#### Step 1: Calculate Weighted Risk
For each token type:
`Weighted Risk = (Percentage of Token × Risk Weight)`
Add these values together for all token types.

#### Step 2: Normalize Risk
To scale the risk between 0% (safest) and 100% (riskiest):
`Normalized Risk = ((Weighted Risk - 10) / 90) × 100`

#### Example Portfolio:
- 40% USD, 30% Ethereum, 20% Blue Chips, 10% Other Tokens
- Calculate Weighted Risk:USD: 40% × 0.1 = 4
- Ethereum: 30% × 0.3 = 9
- Blue Chips: 20% × 0.6 = 12
- Other Tokens: 10% × 1.0 = 10
Total Weighted Risk = 4 + 9 + 12 + 10 = 35
- Normalize Risk:
`Normalized Risk = ((35 - 10) / 90) × 100 = 27.78%`

---

### **2. Sentiment Score (S): What’s the Market Mood About Your Tokens?**
Sentiment measures market confidence in your tokens. Each token has a sentiment weight:

- **Bullish:** 1.0
- **Neutral:** 0.5
- **Bearish:** 0.0

#### Step 1: Normalize Portfolio
Remove any unrated tokens and scale the remaining percentages to 100%.
`Normalized Percentage = (Original Percentage / Total Rated Percentage) × 100`

#### Step 2: Calculate Sentiment Score
For each rated token:
`Sentiment Contribution = (Normalized Percentage × Sentiment Weight)`
Add these values together for all tokens.

#### Example Portfolio Sentiment:
- 40% Bullish, 30% Bearish, 20% Neutral, 10% Unrated
- Normalize Portfolio:Bullish: (40% / 90%) × 100 = 44.4%
- Bearish: (30% / 90%) × 100 = 33.3%
- Neutral: (20% / 90%) × 100 = 22.2%
- Calculate Sentiment Score:
`Sentiment Score = (44.4 × 1.0) + (33.3 × 0.0) + (22.2 × 0.5) = 55.5%`

---

### **3. Diversification Score (D): How Well-Balanced is Your Portfolio?**
Diversification is measured with three sub-scores:

#### **a) Distribution Score (40%)**
This evaluates the balance of token percentages using the Herfindahl-Hirschman Index (HHI):
`HHI = Sum of (Percentage of Each Token in Decimal Form²)
Distribution Score = ((1 - HHI) / 0.8) × 100`

#### **b) Category Coverage (30%)**
This measures how many of the 5 main token categories (e.g., stablecoins, BTC/ETH, Blue Chips) are represented:
`Category Score = (Number of Categories Represented / 5) × 100`

#### **c) Asset Balance Score (30%)**
This measures the percentage of stable assets (USD):

- If Stable Assets < 20%: `Balance Score = (Stable Assets / 20) × 100`
- If Stable Assets > 40%: `Balance Score = ((60 - Stable Assets) / 20) × 100`
- If Stable Assets are between 20%-40%: `Balance Score = 100`

#### Final Diversification Score:
`Diversification Score = (Distribution Score × 0.4) + (Category Score × 0.3) + (Balance Score × 0.3)`

#### Example Portfolio:
- 30% Ethereum, 30% Bitcoin, 20% USD, 20% Blue Chips
- Distribution Score:
`HHI = (0.3² + 0.3² + 0.2² + 0.2²) = 0.26
Distribution Score = ((1 - 0.26) / 0.8) × 100 = 92.5`
- Category Score:
4 categories represented.
`Category Score = (4 / 5) × 100 = 80`
- Asset Balance Score:
USD percentage = 20% (optimal range).
`Balance Score = 100`
- Final Diversification Score:
`Diversification Score = (92.5 × 0.4) + (80 × 0.3) + (100 × 0.3) = 91`

---

### **4. Transaction Activity (T): How Active Are You?**
This measures how your transaction count compares to the average user.
`Transaction Score = min((Your Transactions / 20), 5)`

#### Example:
If your transactions are 150% of the average user:
`Transaction Score = min(150 / 20, 5) = 5`

---

### **5. Final Bankless Score: Bringing it All Together**
The final score combines **Risk (R)**, **Diversification (D)**, and **Transaction Activity (T)**:

#### Step 1: Calculate Composite Score (C):
`Composite Score = (((100 - Risk Score) × 0.5) + (Diversification Score × 0.5)) / 10`

#### Step 2: Calculate Final Score:
`Final Score = (((Composite Score + Transaction Score) / 15) × 100)`

#### Example:
- Risk Score = 30
- Diversification Score = 80
- Transaction Score = 5
- Composite Score:
`Composite Score = (((100 - 30) × 0.5) + (80 × 0.5)) / 10 = 7.5`
- Final Score:
`Final Score = (((7.5 + 5) / 15) × 100 = 83.33%`

---

### **What Does the Bankless Score Mean?**
- **High Score (>80):** Excellent portfolio and activity.
- **Medium Score (50-80):** Decent performance with room for improvement.
- **Low Score (<50):** Portfolio is risky, inactive, or poorly diversified.
Optimize your portfolio to maximize your Bankless Score and achieve financial freedom!