ABSTRACT
The analysis is meant to build atop of existing analytics like Gauntlet regarding at-risk borrowers referencing DeFi Llama for the sample. This additive analysis further drills into a borrower’s riskiness based on their credit score which is the likelihood of default (or liquidation in case of Compound).
Premise: Borrowers with strong credit scores are risk-minded, thus unlikely to let their loans be liquidated, even with unexpected market volatility.
MOTIVATION
Understanding liquidation risk from a user level (micro) and protocol level (macro), Compound can better assess true insolvency risk to the protocol.
BORROWER ANALYSIS
Borrower 0x2AEa39e27Fc87De4A63963687C6e188F062197b4
Per RociFi’s credit risk model, this address is rated a 9 out of 10, i.e. a weaker credit score.
Historical activity across all of DeFi – not just Compound – include:
- 23 total borrows, all-time
- Wallet age of 506 days
- $88K in total debt repaid, all-time
- 8 liquidations, all-time
- $4.9M in total liquidations, all-time
- $716K debt outstanding to Compound
The borrower’s weaker credit score coupled with current health factor of 1.10 indicate high risk to the protocol. Given the relatively small amount of debt coupled with liquid collateral assets of WBTC, the overall risk to Compound does not seem cause for concern at the moment.
Borrower 0xe84A061897afc2e7fF5FB7e3686717C528617487
This address is rated a 3 out of 10, i.e. a strong credit score.
- 108 total borrows, all-time
- Wallet age of 711 days
- $126M in total debt repaid, all-time
- Zero liquidations, all-time
- $69M debt outstanding to Compound
The borrower’s strong credit score coupled with current health factor of 1.25 suggest less risk to the protocol despite the large amount of outstanding debt. Additionally, the collateral backing the loan is comprised of fairly liquid assets of WBTC, ETH, and BAT.
Borrower 0x99E881E9e89152B0add27c367f0761f0FBe5Ddc3
This address is rated a 4 out of 10, i.e. a good credit score.
- 65 total borrows, all-time
- Wallet age of 282 days
- $20.5M in total debt repaid, all-time
- Zero liquidations, all-time
- $22.5M debt outstanding to Compound
The borrower’s good credit score coupled with current health factor of 1.22 suggest less risk to the protocol despite the large amount of outstanding debt. Additionally, the collateral backing the loan is comprised of fairly liquid assets of ETH and WBTC.
Borrower 0xceEf57F6C40A7CB2392eaAD101Ee0440aA43bA42
This address is rated a 9 out of 10, i.e. a weaker credit score.
- 60 total borrows, all-time
- Wallet age of 427 days
- $2.3M in total debt repaid, all-time
- 14 liquidations, all-time
- $27.6M total liquidations, all-time
- $4.9M debt outstanding to Compound
The borrower’s weak score and current health factor of 1.15 indicate high risk to the protocol. The relatively larger amount of debt is slightly mitigated with liquid collateral assets of WBTC and COMP backing the loan. If negative volatility returns, this position should be monitored.