Asset Risk
How assets are evaluated on Tren Finance
Asset Risk Assessment
The listing team at Tren Finance is actively on the lookout for innovative assets that fit the protocol's goal of (re)Enabling liquidity, such as LP tokens, money market deposit tokens, and other yield-bearing tokens. Once such an asset is found, the asset will go through the Asset Risk Analysis process outlined below. If the asset passes the risk analysis test, the asset will likely start with a lower XY borrow debt ceiling to mitigate risk, and increase based on borrowing demand of the isolated module and continued risk evaluation of the asset.
Risk Methodology
The information gathered from using the risk methodology table below, along with the protocol's novel Proof-of-Liquidity concept, is taken into account to reach risk parameters such as max LTV, liquidation threshold, and XY debt ceiling for an asset’s isolated module.
Score | Market Cap | Holders | Total Transfers | Liquidity (TVL) | Buy-side Impact | Sell-side Impact |
Weight | 18% | 18% | 18% | 18% | 14% | 14% |
1 | ≥ $5,000,000 | ≥ 500 | ≥ 15,000 | ≥ $500,000 | ≤ 40.00% | ≤ 40.00% |
2 | ≥ $10,000,000 | ≥ 1,000 | ≥ 25,000 | ≥ $1,000,000 | ≤ 30.00% | ≤ 30.00% |
3 | ≥ $30,000,000 | ≥ 2,500 | ≥ 50,000 | ≥ $2,500,000 | ≤ 20.00% | ≤ 20.00% |
4 | ≥ $50,000,000 | ≥ 5,000 | ≥ 100,000 | ≥ $5,000,000 | ≤ 15.00% | ≤ 15.00% |
5 | ≥ $100,000,000 | ≥ 10,000 | ≥ 250,000 | ≥ $7,500,000 | ≤ 10.00% | ≤10.00% |
6 | ≥ $250,000,000 | ≥ 25,000 | ≥ 500,000 | ≥ $10,000,000 | ≤ 7.50% | ≤ 7.50% |
7 | ≥ $500,000,000 | ≥ 50,000 | ≥ 1,000,000 | ≥ $25,000,000 | ≤ 5.00% | ≤ 5.00% |
8 | ≥ $1,000,000,000 | ≥ 100,000 | ≥ 5,000,000 | ≥ $50,000,000 | ≤ 2.50% | ≤ 2.50% |
9 | ≥ $5,000,000,000 | ≥ 250,000 | ≥ 10,000,000 | ≥ $100,000,000 | ≤ 1.00% | ≤ 1.00% |
10 | ≥ $10,000,000,000 | ≥ 500,000 | ≥ 50,000,000 | ≥ $200,000,000 | ≤ 0.50% | ≤ 0.50% |
The table above is a useful framework for risk evaluation of most spot assets, but as Tren Finance works with different asset types, a more flexible approach and adjustments to the methodology table above and overall risk analysis are needed.
"Wrapped" Tokens
We use the term "wrapped" to describe tokens such as money market deposit tokens, LSTs, LRTs, or any token that may require an "unwrapping" process in order to liquidate or sell the asset. The first questions that we ask about these assets are:
Does the wrapped asset have direct liquidity? If so, how does this liquidity compare to the liquidity for the native (unwrapped) asset?
If there are no sources of direct liquidity, are there any delays / lock-up periods for "unwrapping" the asset back to its native form?
We use these answers to determine whether an asset is able to be listed, and how to determine its risk levels. For example, if a money market deposit token did not have sources to direct liquidity, but also did not have any lock-up periods, then we would look at the native asset's liquidity levels for liquidity analysis, while looking at the total transfers and holder numbers of the deposit token to analyse the risk levels of the money market protocol.
LP Tokens
Liquidity Pool tokens also require a separate type of risk analysis. The underlying assets of the liquidity pool will go through individual risk analysis first, and then we look at the overall liquidity in the liquidity pool. Some important questions that we ask about LP tokens are:
What is the balance of the different tokens in the liquidity pool? Is the balance even? Or does a riskier asset have a lopsided weight in the liquidity pool?
Do the individual assets in the liquidity pool have sources to other forms of liquidity? Or is this liquidity pool the primary source of liquidity for an asset?
LP tokens, in general, have lower levels of associated risk than individual assets when a "safe" token such as a widely used stablecoin makes up at least 50% of the liquidity pool. Because of this, Tren Finance may list the LP token of an asset first, and then list the individual asset later on.
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