Risk Methodology

Learn more about how risk parameters on Euler are determined

Introduction

The Euler risk framework aims to do two things:

1. Maximise capital efficiency through borrowing and lending activity; and

2. Minimise risk and the probability of bad debts.

To achieve this, a methodology to stress test individual assets as well as simulate a portfolio of assets in tail risk scenarios.

Methodology

Ranking all available ERC20 tokens according to risk parameters:

1. Smart Contract Risk

2. Centralisation

3. Volatility

4. Liquidity

Additionally, assessing Oracle Risk

In order to arrive at:

1. Collateral Factor

2. Borrow Factor

3. Cross Tier Factor

Simulate risk scenarios to maximise borrowing and lending activity and minimise bad debts

Update factors and methodology through governance