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With DeFi Pulse’s new safety ratings, users can compare risk

Photo of: Dennis Ramos
by Dennis Ramos

DeFi Pulse has carved a niche for itself for being one of the most reliable analytics platforms. Moving ahead it has always thought of newer tools that have helped organizations track data and performances. Recently DeFi Pulse has launched new safety ratings in alpha primarily to let its users compare the risks that on-chain protocols pose. But the rating system is still in development and for now, does not include in-all risks like smart contract risks. 

Gauntlet, the digital asset modeling platform has partnered along with  DeFi Pulse for the project. The grading tool has been designed keeping in mind key factors which include user behavior, collateral volatility, also collateral volatility on a relative basis, smart contract risk, and much more. Every project has a risk profile ranking between 1 and 100. 

Source: Gauntlet

As for the projects that will be analyzed for risk analysis, decentralized lending protocols Aave and Compound have both been reviewed in the new Economic safety Grade Scheme. Both the protocols have received 95% and 91% ratings respectively. The next protocol to be assessed is MakerDAO which will soon be assessed in the index and scored in percentage. 

DeFi Pulse is extremely confident of the new project and stated: 

“In this initial alpha, these grades are formed by analyzing the historical liquidity and volatility data to find the collateral most likely to cause issues.” 

The team further added that the findings have to be normalized before the rank can be allotted to it. It further exclaimed:

“The risk of the system for users borrowing stablecoins against this collateral is estimated and normalized to create the 1 to 100 grade you see on DeFi Pulse.”

Gauntlet further highlighted that its safety assessment metric is yet in the nascent stage and it is very early to pin down the specifics. It also stressed that there are many risks associated with lending protocols and as of now all of those risks have not been included in the scoring system. 

“An astute observer might have noticed we omit the case where the protocol is illiquid. We hope to model this as well as a few other things as we build towards a beta release.”

But what the ranking system now stands, is to determine any chances of insolvency in the audit process of the on-chain lending protocols. Maker suffered from a mass liquidation event earlier this year when there was immense price volatility. On the same day $8.32 million disappeared and that Thursday has come to be known as ‘Black Thursday’. Gauntlet only hopes that with this tool other such events can be prevented from happening within the crypto sector.

Any sector that has immense potential is not without its share of risks and DeFi also falls in that category. While there have been so many promising projects, there have also been some risky, scam-worthy, and fake tokens that have slightly eroded trust at least momentarily. SushiSwap is the biggest example that triggered fear when Chef Nomi disappeared.