Risk Framework (version 1)


Treasury League


A post to present version 1 of our Risk Framework.



At the beginning of March, we started a discussion about risk management to standardize future analyses of new underlying markets to be integrated on Yield Tranches and Best Yield.

This framework will improve the current Integration Standard requirements and simplify the onboarding of new yield sources into Best Yield strategies.

Thanks to the feedback of contributors and practitioners collected both on our forum and privately, today we are able to publish the first version of the Risk Framework.


The framework follows the structure outlined in our discussion plus a fourth item:

  1. Third-party review
  2. Internal Security review
  3. Strategy review
  4. Coverage

1. Third-party review

The third-party review presents no changes

2. Internal Security review

We implemented some fine-tuning to the Internal Security review. Now the protocol losses, aka Bad Debt/LP Losses will be computed as a percentage of the overall TVL. This change will let us better compare losses across protocols with different sizes of liquidity.

3. Strategy review

The Strategy review will analyze the same metrics shared.

We also expanded the analysis of underlying markets in the Strategy review by adding the uncollateralized lending market. This underlying market will be rated according to these two metrics:

  • Borrower capacity and Borrower rating
    The borrowing capacity and the borrower rating metrics offered by Credora will be used to rate the risk of borrowers behind uncollateralized lending pools. We weigh differently the two because we consider the Rating as a more comprehensive metric to assess the financial health of a borrower.
Description Weight
Credora’s borrower capacity 20%
Credora’s borrower rating 80%

4. Coverage

We added a fourth part, better saying, a new metric, applicable to all the underlying markets: Coverage, i.e. the minimum coverage needed to let the Best Yield deposit funds into the Yield Tranches pools.

This metric will behave differently with respect to the others listed and will be computed on a case by case need. It will be summed to the previous scores obtained with the reviews: Third-party, Internal Security and Strategy.

Risk rating

The final rating follows the same structure outlined

Next Step

We will give some time to the DAO to understand the framework and share any feedback. We will also share some examples to see how this theoretical setup behaves in some practical cases.

:arrow_right: The full analysis is available here: Risk Framework [PUBLIC]


Rating example: overcollateralized lending

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Rating example: uncollateralized lending

Using the framework described above, we can rate the newly launched Clearpool’s (Portofino) as follows

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