Collateral Standards
The Multi-Layer Risk Rating consists of combining the different sources of risk associated with an investment position into a single rating: the Final Market Rating. This rating determines the vault eligibility and quantitative limits in managing investment exposure.
An investment position can take various forms, such as:
holding a crypto asset to benefit from its economic value appreciation
holding a Pendle or Spectra Principal Token (PT) to secure yield over a defined time horizon
providing liquidity in a Liquidity Pool to earn swap fees
taking a position in a Morpho Market to generate interests from a lending pool.
These positions can also be combined. For example, the PT-sUSDS/USDC pair represents a Morpho lending market for USDC against the sUSDS Principal Token as collateral issued on the Pendle platform.
Therefore, we’ve constructed a Multi-Layer analysis with three intermediate independent rating based on the following layers:
Asset Rating assesses the quality of the collateral and the role of stakeholders in managing the underlying asset. It evaluates the risk of default by the issuer, as well as potential losses stemming from technological vulnerabilities or poor governance.
Platform Rating focuses on the resilience of an additional DeFi protocol layer. The platform is the application that transforms the native token into a new one with a different economic purpose. It includes an analysis of the platform’s credibility as an issuer and the risks associated with its technological implementation.
Market Rating examines the risk parameters configured on the DeFi lending markets. It evaluates the oracle mechanism, the structure and correlation of trading pairs, liquidity depth, and credit enhancements (measures that mitigate the risk of asset loss or bad debt).
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