The Five Risk Dimensions
Each dimension evaluates a distinct axis of risk. Together, they provide a comprehensive picture of whether an asset can be safely integrated into the lending protocol.| Dimension | Core Question | Detail |
|---|---|---|
| Oracle Pricing Risk | How reliable is the price feed? | Number and quality of oracle sources, uptime, staleness |
| Smart Contract Risk | How robust is the token’s underlying code? | Audit history, maturity, battle-testing, bug bounty |
| Depeg Risk | Could this pegged asset lose its peg? | Reserve backing, smart contract exposure, historical stability |
| Counterparty Risk | Who controls this token and how much trust is required? | Governance decentralization, holder concentration, entity track record |
| Market Risk | Can liquidations execute profitably? | Volatility, liquidity, price impact, trading volumes |
Asset Tiering
The assessment maps directly to how each asset can be used on the protocol. Every token is classified into one of three tiers:General Asset
The token passes all five dimensions at acceptable thresholds. It can be used as collateral and borrowed in cross-margin mode, with standard LTV limits. Most major tokens (SOL, USDC, USDT, JitoSOL) fall into this tier.Isolated Collateral
The token has elevated risk in one or more dimensions — perhaps limited oracle coverage, a newer smart contract without extensive battle-testing, or thin market liquidity. It can be used as collateral, but only in isolated mode: the user’s position with this collateral is ring-fenced from their other positions. This prevents a problem with a high-risk collateral token from cascading into other positions.Isolated Debt
The token has elevated borrowing risk — perhaps high volatility, limited liquidity for liquidators, or a new and unproven market. It can be borrowed, but only in isolated mode with strict caps.Parameter Derivation
The assessment directly determines two key protocol parameters for each asset:Collateral Max LTV
The maximum loan-to-value ratio allowed when using this token as collateral. A token assessed as low-risk across all dimensions might receive a Max LTV of 80–85%. A higher-risk token might receive 50–65%, or be restricted to isolated mode entirely. Max LTV is calibrated conservatively — it must leave enough margin for the collateral value to decline before reaching the liquidation threshold, accounting for the asset’s measured volatility and the time needed for liquidators to execute.Borrow Factor
A risk weight applied to the debt side. A Borrow Factor above 1.0 means the protocol treats the debt as riskier than its face value — effectively requiring more collateral to borrow that asset. Volatile or illiquid tokens receive higher Borrow Factors, while stablecoins and well-established tokens receive factors close to 1.0.Ongoing Reassessment
Onboarding is not a one-time gate. The framework is applied continuously:- Market-driven reassessment: If an asset’s liquidity drops significantly, its volatility spikes, or its oracle coverage narrows, the risk profile changes. Parameters are adjusted accordingly — LTV limits may be lowered, caps may be reduced, or the asset may be moved to isolated mode.
- Event-driven reassessment: A smart contract exploit on a listed token’s underlying protocol, a governance incident, or a depeg event triggers immediate review and potential parameter changes.
- Periodic review: The Risk Council reviews all listed assets periodically, incorporating the latest KRAF dashboard data, monthly risk reports, and market conditions.