As we mentioned in our recent post, we’re going to be making more proposals on Compound to improve risk and capital efficiency. Our platform runs daily stress tests on the protocol that allow us to quantify potential risks and continuously monitor them. Today, we’re releasing the beta version of a risk dashboard for Compound, as we’re hoping to get feedback from the community as we work towards a v1 release.
The dashboard provides statistics on the overall health of the protocol:
The safety grade here is the same one we provide to DeFi Pulse and you can find out how we calculate it here, along with more info on what factors contribute to risk. We also provide statistics for each collateral type which align with those factors:
- Collateral Safety - This is a result of our daily simulation runs on the protocol. We currently bucket each collateral type (High / Medium / Low) based on the expected contribution to protocol insolvency risk.
- Volatility - Simply, this is 7-day average volatility, annualized.
- Liquidity Ratio - This measures the amount of liquidity for each market. This compares the real daily trading volume to the maximum amount of collateral that could be liquidated. A liquidity ratio of 349% means that the daily volume of ZRX is 3.49 times the maximum amount of ZRX collateral liquidators would have to sell given a precipitous drop in ZRX price.
- Collateralization Ratio - This is the ratio of the amount of collateral posted to the amount of assets borrowed against it. A CR of 372% means that there are $3.72 of ZRX for every $1 of assets borrowed against it.
Using an analytical methodology to manage risk drastically increases both the capital efficiency and safety of DeFi protocols. We’ll continue to suggest parameters on Compound based on our models, but we’re trying to do this with all of you in the community. Hopefully, by giving the community insight into the risks and opportunities we see, we can move forward together to improve the protocol.