Methodology
Methodology
Omni has innovated personalized lending through risk pools and risk grades, providing lenders with the flexibility to select their desired risk level and corresponding returns within specific pools. This means that the risk of deposits is only confined to the collateral assets associated with the risk pools. This model ensures the overall safety of the protocol, as an individual asset's compromise will not jeopardize the entirety of user funds.
For asset listings and risk grade assignments, each asset undergoes meticulous assessments covering smart-contract risk, counterparty risk, and market risk factors. The following risk grade is created by Beta finance as a reference guide for asset risk analysis.
Risk Grade Range
Risk grade ranges from Low risk for the safest assets of the protocol (e.g., Ethereum, USDC) to High risk. The assets exposed to high risk factors may still be considered for integration; however, they are limited to Isolated collateralization to shield solvency of the protocol.
Risk Assessment
The historical data can be quantified in three different aspects of market risks based on these three risk factors:
- Smart Contract Risk
- Counterparty Risk
- Market Risk
We sum the scores from these three aspects and assign appropriate risk grade based on that.
Smart Contract Risk
Smart-contract (SC) focuses on measuring the technical security of the underlying code for any asset. SC risk of an asset is assessed by:
- Transaction Volume: A higher number of transactions indicates a battle-tested smart contract. Frequent use suggests community trust and potentially a higher level of reliability.
- Holder Count: The number of distinct holders reflects the asset's acceptance and diversification across the community.
- Asset Age: The longevity of an asset can be a proxy for its maturity and stability. Older assets may have undergone more scrutiny and usage, potentially making them more reliable.
- Audit Quality: Rigorous audits by reputable auditors are crucial. They ensure the code's security and integrity, which is fundamental for any asset's inclusion in the Omni protocol.
- Bug Bounties Presence: Bug bounties show the asset's commitment to ongoing security. They encourage the discovery and resolution of vulnerabilities, enhancing the smart contract's resilience.
- Total Value Locked (TVL): For assets that accept user deposits, the TVL is a measure of trust and usage. A higher TVL often indicates stronger community confidence in the asset.
| Scores | Txs | Users | Age of Asset | Audits/Bounties | TVL |
|---|---|---|---|---|---|
| S | 1,000,000+ | 100,000+ | 2 years + | Several high quality Audits & $1mm+ bounty | $500m+ |
| AA | 500,000+ | 50,000+ | 1 years + | High quality Audit & second audit & $500k+ bounty | $100m+ |
| A | 250,000+ | 25,000+ | 6 months + | High quality audit & $100k+ bounty | $50m+ |
| BB | 100,000+ | 10,000+ | 3 months + | High quality audit & $50k+ | $10m+ |
| B | 50,000+ | 5,000+ | 2 months + | Several audits & $10k+ | $1m+ |
| C | < 50,000 | < 2,500 | < 2 months | An audit & some unit/integration tests | < $1m |
Counterparty Risk
Counterparty (CP) risk is an approximate measure of the centralization of an asset. CP risk of an asset is assessed by:
- Team Reputation: A reputable team can imply a higher level of trust and competency, potentially reducing risk.
- Governance Structure: The way an asset is governed affects its stability and adaptability. A decentralized and transparent governance structure usually indicates lower risk.
- Custodian Reliance: Assets heavily reliant on custodians for operation or security can face heightened risks, such as custodian failure or malpractice.
- Governance Power Distribution: The method of managing treasury and contracts (e.g., multi-sig vs. single signer) is indicative of risk levels. A distributed governance system (like n of k multi-sig) generally suggests lower risk, as it avoids single points of failure.
- Regulatory Exposure: The extent to which an asset is subject to regulatory scrutiny can significantly impact its risk. Assets with high regulatory exposure might face additional challenges and uncertainties, affecting their stability and security.
| Scores | Team risk | Centralization risk | Regulatory risk |
|---|---|---|---|
| S | Extremely reputable team with clear incentives to act in protocol best interest | Contracts controlled by DAO or 1st world government-regulated custodian | Extremely unlikely to have regulatory action enacted against asset/team |
| AA | Highly reputable team | DAO governance or highly reputable custodian | Highly unlikely to have regulatory action enacted |
| A | Very reputable team | DAO governance or protocol multi-sig w/ off-chain voting or great custodian | Very unlikely to have regulatory action enacted |
| BB | Very reputable team | Multi-sig governance with off-chain voting | Unlikely to have regulatory action enacted |
| B | Reputable team | Multi-sig governance without voting | Regulatory risk is present |
| C | The team can be vouched for | Single-signer governance | Regulatory risks present or pending |
Market Risk
Market (M) risk is a quantitative assessment of the present liquidity and historical volatility of an asset. M risk of an asset is assessed by:
- Average 24-Hour Volume: This metric acts as a gauge for the asset's liquidity, reflecting how easily it can be traded without significant price impact. High volume across centralized and decentralized exchanges suggests better liquidity.
- AMM Liquidity Dynamics: Observing the growth and decay patterns in Automated Market Maker (AMM) systems can indicate the stability and reliability of the asset’s liquidity over time.
- Historical Price Volatility: Analyzing the asset’s maximum price movements within one and four hours, offers insight into its volatility. This is critical for understanding the risk of rapid value changes, especially relevant for assets in Beta markets where price fluctuations greatly impact the protocol.
- Oracle Deviation Threshold: The sensitivity of the price oracle in updating asset values is a key factor. A smaller deviation threshold means the protocol has a more accurate and timely representation of the asset’s market price, reducing risks related to price inaccuracies.
- CEX listing: The listing of an asset on centralized exchanges with daily high-volume provide more stable and reliable market data, reflecting broader market acceptance and reduced susceptibility to market manipulation.
| Scores | Avg. 24-hr volume | DEX AMM Liquidity | 1-hour max % change | 4-hour max % change | Oracle Dev. Threshold | CEX Listings |
|---|---|---|---|---|---|---|
| S | $1b+ | $100m+ | 2.5% | 5% | 1% | Exchanges with $1b daily volume |
| AA | $100m+ | $25m+ | 5% | 10% | 2% | Exchanges with $1b daily volume |
| A | $50m+ | $10m+ | 10% | 20% | 3.5% | Exchanges with $100m daily volume |
| BB | $10m+ | $5m+ | 20% | 40% | *** | Exchanges with $100m daily volume |
| B | $1m+ | $1m+ | 40% | 60% | *** | Exchanges with $10m daily volume |
| C | < $1m | < $1m | > 40% | > 60% | *** | *** |