Digital asset modeling platform Gauntlet partnered with decentralized finance (DeFi) analytics platform DeFi Pulse to launch risk score ratings for DeFi projects. The ratings allow users to compare the risks they face using on-chain protocols.
1/ Introducing the DeFi Pulse Economic Safety Grade
Created in partnership with the fine folks at @gauntletnetwork, economic safety grades allow users to more easily quantify and compare the risks they face using on-chain protocols. pic.twitter.com/9Iaw8xrOF0
— DeFi Pulse 🍇 (@defipulse) October 13, 2020
On-chain lending protocols Aave and Compound have already been reviewed for risk scores by the Economic Safety Grade scheme. They received scores of 95% and 91% respectively. Next on the assessment list is MakerDAO.
The DeFi Pulse Economic Safety Grade is created by running simulations utilizing data from centralized and decentralized exchanges combined with on-chain user data to estimate market risks. As a result, each project receives a risk profile ranking between 1-100.
As per DeFi Pulse,
In this initial alpha, these grades are formed by analyzing the historical liquidity and volatility data to find the riskiest collateral.
The rating tool looks at key factors including user behavior, collateral volatility, relative collateral liquidity, protocol parameters, and smart contract risk. However, the ratings system is still in the development stage. Therefore, the ranking score does not model any smart contract risk yet such as reentrancy attacks.
Gauntlet particularly notes that,
Auditors and formal verification tools assessing smart contract risk are suitable.
Nonetheless, the abovementioned factors greatly determine the chance of insolvency in audited on-chain lending protocols.
The alpha release does not cover every risk that users of lending protocols encounter. Rather, it omits the case where the protocol is illiquid. It hopes to model this as well as a few other things as they build a beta release.