Methodology
Learn more about how risk parameters on Euler are determined

Introduction

The Euler risk framework aims to do two things:
  1. 1.
    Maximise capital efficiency through borrowing and lending activity; and
  2. 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. 1.
    Smart Contract Risk
  2. 2.
    Centralisation
  3. 3.
    Volatility
  4. 4.
    Liquidity
Additionally, assessing Oracle Risk
In order to arrive at:
  1. 1.
    Collateral Factor
  2. 2.
    Borrow Factor
  3. 3.
    Cross Tier Factor
Simulate risk scenarios to maximise borrowing and lending activity and minimise bad debts
Update factors and methodology through governance
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