Credit Risk (Pillar 2)

Credit Risk is a discretionary assessment of the probability of loss of value from the asset.

It is based on the probability of default from the issuer and on the risk profile of the underlying value creation mechanism. For underlying real world assets, it involves assessing the probability and magnitude of losses, volatility, and potential mark-to-market drawdowns.

For on-chain assets, the credit risk is assessed against the asset volatility, reserve shortfall, issuance policy, probability of extreme events and bad debt realization via liquidation.

Indicators:

• Risk profile of the asset class

• Capacity to build overcollateralized reserves or presence of first-loss protections such as junior tranches

• Robustness of the factors underpinning crypto asset valuation

The Credit Risk Pillar is expressed as a single rating ranging from AA to C.

2nd Pillar	Criteria
Credit Risk	Likelihood and severity of credit losses on underlying assets
Pillar Rating	Single Rating (AA to C)