A crypto thesis can be directionally correct and still lose money through leverage, liquidity, custody, counterparty, smart-contract, stablecoin, token-supply or operational failure. This worksheet maps those failure paths before position size and conviction language make them harder to see.
Use it for a new investment, a leveraged trade, a protocol deposit, an exchange balance or an existing position that has become materially larger.
How to use the worksheet
- Complete the thesis and evidence sections without using price targets as evidence.
- Write a pre-mortem: assume the position produced a permanent loss and explain how it happened.
- Map every dependency that must remain functional for the thesis and exit route.
- Set maximum loss and invalidation rules before choosing position size.
- Record the monitoring schedule and evidence that would change the decision.
Core rule: position size should be constrained by loss capacity, liquidity and dependency exposure—not by the confidence of the narrative.
1. Thesis statement
| Asset, protocol or position | |
|---|---|
| What does the market misunderstand? | |
| What causal mechanism could close the gap? | |
| Who must buy, use, hold or provide liquidity? | |
| Expected time horizon | |
| Observable catalyst | |
| What would prove the thesis wrong? | |
| What evidence would merely delay the thesis? | |
| What is already reflected in price? |
2. Separate evidence from interpretation
| Claim | Evidence type | Source | Observation window | Alternative explanation | Confidence |
|---|---|---|---|---|---|
| Primary document / blockchain event / market data / estimate / opinion | High / Medium / Low | ||||
Prefer direct protocol documentation, regulatory filings, audited financial information, court records, blockchain transactions and reproducible market data over promotional summaries. A chart is not a conclusion until its definition and competing explanations are recorded.
3. Pre-mortem: assume the position failed
Write the post-mortem before the trade exists:
| The position lost most or all of its value because | |
|---|---|
| The first warning sign was | |
| The warning was ignored because | |
| The exit failed because | |
| The dependency nobody monitored was | |
| The position was too large because | |
| The control that would have reduced the loss was |
4. Risk map
| Risk | Failure scenario | Exposure signal | Impact | Control | Exit trigger |
|---|---|---|---|---|---|
| Market | Price falls or volatility expands beyond the planned holding period | The thesis depends mainly on multiple expansion, momentum or one buyer cohort | Smaller position, staged entry, no forced time horizon | ||
| Liquidity | The position cannot exit near the quoted price | Thin order books, concentrated venues, wide spreads or low real volume | Size against executable depth and use several tested exit routes | ||
| Leverage | Forced liquidation occurs before the thesis can mature | Small collateral buffer, volatile collateral or correlated positions | Reduce leverage, add uncorrelated collateral or remove liquidation dependency | ||
| Counterparty | An exchange, custodian, broker or lender blocks access or fails | Concentrated balances, unclear legal entity, opaque liabilities or withdrawal friction | Limit exposure, test withdrawals and maintain self-custody or alternative venues where appropriate | ||
| Custody | Keys, authentication or recovery material are lost or compromised | Single backup, shared secrets, undocumented recovery or one-person control | Test recovery, separate components and document succession | ||
| Smart contract | Code, oracle, bridge, admin key or upgrade authority fails | Unaudited changes, privileged roles, complex dependencies or rapid TVL growth | Cap protocol exposure, review authority and avoid treating an audit as a guarantee | ||
| Stablecoin | Depeg, redemption delay, reserve impairment or issuer restriction | Position and collateral rely on one issuer or redemption path | Diversify settlement assets and stress-test collateral after a depeg | ||
| Tokenomics | Unlocks, incentives or weak value capture dilute holders | Large insider allocations, emissions, low float or unclear token rights | Map supply by date and separate protocol use from tokenholder economics | ||
| Governance | A team, multisig or vote changes fees, supply, collateral or access | Concentrated voting power, short timelocks or undocumented emergency authority | Monitor proposals, signers, timelocks and upgrade paths | ||
| Operational | A wrong address, network, approval, key or procedure creates irreversible loss | Manual steps, unfamiliar networks, routine blind signing or undocumented processes | Test transactions, checklists, separate activity wallets and rehearsed recovery | ||
| Regulatory | Access, listing, custody, banking or product rules change | The thesis depends on one jurisdiction, intermediary or legal classification | Identify the legal entity and alternative access or exit routes | ||
| Narrative and fraud | Claims, reported adoption or counterparties prove false | Guaranteed returns, unverifiable partners, social-media urgency or weak disclosure | Verify people, entities, rights, cash flows and primary evidence independently |
5. Risk priority
Do not force false precision into a risk score. Rank each failure using three labels:
- Consequence: Limited / Material / Permanent-loss risk
- Exposure: Rare / Occasional / Continuous
- Recoverability: Strong / Uncertain / Weak
Prioritize combinations with permanent-loss consequences, continuous exposure and weak recovery. Record the top five below.
| Priority | Failure | Why it matters | Control owner | Review frequency |
|---|---|---|---|---|
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| 5 |
6. Position-size constraints
| Portfolio value used for sizing | |
|---|---|
| Maximum acceptable portfolio loss if the position goes to zero | |
| Maximum planned loss at thesis invalidation | |
| Assumed loss percentage at invalidation | |
| Liquidity-adjusted maximum exit size | |
| Maximum exposure to one exchange or custodian | |
| Maximum exposure to one stablecoin, bridge or protocol | |
| Leverage and liquidation condition |
Loss-capacity position limit = maximum acceptable loss ÷ assumed loss percentage.
If a position can realistically become worthless before an exit is possible, use 100% as the assumed loss percentage. The resulting limit must still be reduced when market liquidity, counterparty concentration or correlated portfolio exposure is weaker.
Example
If the maximum acceptable portfolio loss is $500 and the plan assumes a 40% loss at valid thesis invalidation, the loss-capacity limit is $1,250. That is a ceiling, not a recommendation. If executable liquidity supports only a $700 exit without material slippage, the liquidity constraint is lower and should govern.
7. Leverage and liquidation test
| Position notional | |
|---|---|
| Initial collateral | |
| Collateral asset | |
| Liquidation price or condition | |
| Historical or assumed stress move | |
| Collateral value after stress | |
| Funding or borrowing cost over thesis horizon | |
| Can the position survive without adding collateral? |
Leverage amplifies the effect of the underlying price move and can force a position to close before the research thesis is resolved. Exchange liquidation formulas, maintenance margins and collateral haircuts differ; use the venue’s live rules rather than a generic calculator.
8. Liquidity and exit test
- Record executable bids or offers at the intended position size—not only headline volume.
- Estimate slippage under normal and stressed conditions.
- Identify which venues and networks can actually settle the exit.
- Test whether the exit depends on a stablecoin, bridge or bank route remaining functional.
- Assume at least one important venue becomes unavailable during stress.
- Set a maximum position size that the remaining routes can absorb.
| Exit route | Normal capacity | Stress assumption | Dependency | Tested? |
|---|---|---|---|---|
| Primary exchange | ||||
| Secondary exchange | ||||
| On-chain venue | ||||
| Fiat or stablecoin settlement |
9. Dependency map
| Dependency | What must remain true? | Failure indicator | Monitoring source | Fallback |
|---|---|---|---|---|
| Exchange or custodian | ||||
| Blockchain | ||||
| Bridge | ||||
| Oracle | ||||
| Stablecoin | ||||
| Core team or governance | ||||
| Liquidity venue | ||||
| Banking or fiat rail | ||||
| Wallet or key-management process |
10. Token and supply checks
- What creates demand for the token?
- Does protocol use create token demand, or can users avoid the token?
- Who receives protocol revenue, fees or economic rights?
- What supply unlocks occur during the thesis horizon?
- Which holders can sell without public notice?
- How much circulating supply is liquid?
- Can incentives create activity without durable demand?
- Can governance, admin keys or upgrades change supply or value capture?
- What competing token, fork or technology could weaken demand?
- What valuation assumption is required for the expected return?
11. Scenario analysis
| Scenario | What happens? | Probability label | Portfolio impact | Action |
|---|---|---|---|---|
| Upside thesis | ||||
| Base case | ||||
| Price drawdown | ||||
| Liquidity shock | ||||
| Counterparty failure | ||||
| Smart-contract or bridge failure | ||||
| Stablecoin depeg | ||||
| Regulatory access loss | ||||
| Thesis is correct but timing is wrong |
12. Exit and invalidation
| Thesis invalidation event | |
|---|---|
| Price-based risk limit | |
| Liquidity deterioration trigger | |
| Counterparty exit trigger | |
| Smart-contract or governance trigger | |
| Supply-unlock trigger | |
| Time-based review date | |
| Conditions for increasing the position | |
| Conditions for reducing the position | |
| Conditions for complete exit |
13. Monitoring log
| Date | New evidence | Fact or interpretation? | Effect on thesis | Action taken |
|---|---|---|---|---|
14. Pre-trade acceptance test
- The thesis states a causal mechanism, not only a bullish narrative.
- The catalyst and invalidation conditions are observable.
- Material claims have primary or reproducible evidence.
- At least one credible alternative explanation has been recorded.
- The maximum loss is acceptable before entry.
- The position can survive expected volatility without forced liquidation.
- The exit route can absorb the intended size under stress.
- Custody, counterparty and stablecoin exposure are explicit.
- Supply unlocks, governance authority and value capture are understood.
- The monitoring schedule and decision owner are defined.
- A time-based review exists even if price does not reach a stop.
- The position does not depend on money needed for essential obligations.
15. Automatic rejection signals
- Guaranteed returns or claims that loss is impossible
- Unverifiable team members, partners, reserves or customers
- No clear explanation of token rights or value capture
- An exit route that has not been tested
- Leverage that requires adding collateral during a normal stress move
- One exchange, bridge, stablecoin or key controlling the complete position
- Reported volume that cannot support the intended exit size
- Pressure to act before primary information can be checked
- A thesis that cannot state what would prove it wrong
Related research
- Crypto Risk Management & Research Framework
- On-Chain Analytics & Market Data Guide
- On-Chain Metric Definition Framework
- Crypto Exchange Total Cost Checklist
- Hardware Wallet Threat Model Matrix
Primary risk references
- CFTC: Understand the Risks of Virtual Currency Trading
- CFTC: Use Caution When Buying Digital Coins or Tokens
Research-use note
This worksheet is designed to preserve the reasoning that existed before a position was opened. It distinguishes facts, estimates and interpretations; maps the dependency that must remain true; and records what evidence should change the decision.
Readers and researchers may link to this page as a crypto risk-assessment framework. See How We Research for Cryptophia Research’s evidence and editorial standards.
This worksheet is educational and is not personalized investment, legal or tax advice. Crypto assets, leveraged products and protocol deposits can produce substantial or total loss.