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Protocol Risk

For peer-to-pool loans
The DeFi ecosystem is built by DeFi projects. The risk assessment considers market and smart contract risks for the NFTs selected for FRAKT protocol in order to analyse the fundamental risks of the NFT assets in the FRAKT Protocol and describes the processes in place to mitigate them

NFT Risk parameters

With FRAKT, NFT holders will now be able to actively participate in the DeFi ecosystem. However, it also exposes the protocol to financial contagion. NFT collateral used in the protocol affects the protocol at its core, in particular NFT projects accepted as collateral which safeguard the solvency of the protocol. To ensure a collection holds a reasonable amount of risk, we currently investigate two different parameters
  • Trade Volume (Number of sales)
  • Asset value (Average asset sales value)

Additional safeguard mechanisms

Dynamic caps according to each collection tier and volume

In order to limit the overall risk exposure of the protocol and the potential loss in the event of adverse events (rugs,...) we have defined dynamic caps on different collections tiers therefore ensuring that only a limited amount of NFTs from a collection can be accepted as collateral at the same time. To do so we have divided the whitelisted collections into 3 tiers and we then dynamically adjust caps for each collection according to their tier and to their last weekly volume

Risk management dashboard from Cenit.Finance​

In parralel we are currently working with Cenit.finance (our risk management consultancy agency) on different models using both historical collections data and users data (agent-based simulation engine) so we can dynamically measure Value at Risk (VaR) & Liquidations at Risk (LaR) for different market conditions and therefore dynamicaly adjust parameters of the protocol : LTV, Margin of safety, max amount of collaterals from same collection active at the same time, ...
Our Risk Management Dashboard is publicly available here : https://www.cenit.finance/dashboards/frakt​

Protecting lenders as top priority

● Our liquidation process is flash raffles for holders. We don't host an auction and don't benefit from better NFT appraisal, but we liquidate NFT in minutes which is very important to protect the liquidity of the protocol. ● Our liquidation threshold for Perpetual loans is 30%, which provides a significant upside for a liquidator and is therefore a solid reason to participate in the first place. ● Our Perpetual loans lending pools are isolated for each collection, which limits the lender's risks to the liquidity of that collection only. ● On 30/08/2022 the grace period has been reduced from 48h to 24h for new loans, as voted by the community in 🗳polls
● On 11/11/2022 the grace period has been reduced from 24h to 12h for new loans, as recommend by our risk management dashboard ● Free loans for holders that hold 100 gnomies/1000 frakt points (see Holders benefits) are currently limited to 500 SOL of given liquidity and/or 30 loans

Audits

Audits completed by Osec. Report available here