Risk Framework
A Strategy Score is our final risk score where a risk free score = 100. It is composed of 3 underlying Risk Factors:
Risk Profiles are defined from the ground up as follows:
- Each integrated pool is assigned a Risk Score
- The Risk Score is based on three factors:
- Exploit Risk
- Asset Risk
- Financial Risk
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Risk Factor | Example Loss Event |
Asset Risk | $MIM depeg causes an op3CRVearn depositor to incur losses |
Pool Risk | The Curve mim3CRV LP underlying token balance ratio shifts which causes an op3CRVearn vault depositor to incur losses |
Exploit Risk | Curve Protocol smart contract hack causes an op3CRVearn vault depositor to incur losses |
There are two vault types: Protocol vaults and Partner Vaults. Partner vaults have their own risk configuration, whereas Protocol vaults are categorized into two Risk Profiles based on Strategy Scores - Earn and Invest.
The Earn Vault enforces a medium-risk investment mandate by enabling strategies with multi-asset Liquidity Pools (LPs) where the price of the underlying assets are tightly correlated. This presents potential exposure to Impermanent Loss (IL) due to temporary imbalance in the pools. The vault’s objective is to achieve good returns with an optimal risk-return trade-off.
Here's an overview of risk for an Earn vault:
The Invest Vault adheres to a high-risk investment mandate which enables depositors to grow their assets over time. The vault’s optimization algorithm includes every investible strategy across DeFi which includes multi-asset pools where the underlying assets are not correlated. Users may be exposed to Impermanent Loss (IL) and the risk of principal loss. In turn, the vault is expected to generate high returns.
For B2B/custom vaults the universe of strategies will be defined by the vault owner. Custom risk constraints may exclude all strategies above a certain risk score, or individual strategies can be approved.
Last modified 2mo ago