Hello, DeFi Enthusiasts!
Welcome to the fresh review I conducted recently!
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DeFi Pulse, in partnership with the digital asset modeling platform Gauntlet, has announced a rating system.
It takes into account:
- user-behavior
- collateral volatility
- protocol parameters
- the riskiness of the smart contract
Points for projects
+90 - a very reliable project, the chances of losses for those who deposit funds are extremely small. At the same time, this also means that the effectiveness of such investments (APY, etc.) will not necessarily be maximum. Low-risk investments are usually less profitable.
80-90 - safe, the chances of loss are quite small.
65-80 - there is a small chance of losing the deposit in extreme market conditions.
50-65 - there is a high chance of deposit losses in extreme market conditions.
less than 50 - a significant chance of losing the deposit in normal market conditions.
Aave and Compound have already been reviewed, the results being 95 and 91 respectively. MakerDAO is next to be reviewed.
They also clarify that these estimates are formed precisely from historical liquidity and volatility.
Gauntlet is currently evaluating the lending protocols. In essence, the company is auditing the project. They do not invest in it directly but build a model based on the smart contract.
To take into account the behavior of the price of coins in this model, a model is built based on the order books of various exchanges. By simulating thousands of price trajectories, Gauntlet can assess the likelihood of a customer defaulting and as a consequence, the risk in the protocol.
They also analyze the most risky collateral which is historical liquidity and volatility data, so as to determine the type of collateral that could cause problems.
Now, this is only an ALPHA version, which means that not all risks are covered. The danger of low liquidity within the protocol is omitted, as well as:
- network overload and gas (at the moment gas is taken into account only conditionally)
- loans with multiple assets
- portfolio stress testing (as in traditional finance)
- protocol reserves (management could use it for payments)
I highly appreciate you reading the article till the end!
The article is written by Anton Vasilev and Mr. Anton Dziatkovskiy, the co-founder and CEO of Platinum Software Development Company.
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