# Risk Methodology

Learn more about how risk parameters on Euler are determined

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.

**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

Last modified 1mo ago