Risk Methodology

Every new protocol integration or asset listing on Mars Protocol introduces unique opportunities - and unique risks.

To safeguard the system and user funds, Mars applies a rigorous, data-driven risk assessment framework developed by Mars Protocol Foundation and executed by the Mars Protocol Governance.

This framework is designed to balance capital efficiency with robust risk mitigation, using both traditional finance tools and DeFi-native insights.

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Risk Framework Overview

The Mars Risk Framework is a structured process used to evaluate:

• New protocol integrations

• Asset listings (standard tokens and LP tokens)

• Risk parameters (e.g., LTVs, borrow caps, liquidation thresholds)

Originally developed for Mars v2, the framework incorporates international best practices while addressing the unique volatility, decentralization, and oracle dependence of DeFi.

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Risk Assessment Tools

Mars combines traditional and crypto-native tools to quantify asset risk:

Metric Type	Description
TradFi Metrics	Conditional Value at Risk (CVaR), Amihud Illiquidity Measure
DeFi Metrics	Oracle reliability, smart contract security, decentralization scoring

All assets are scored along a risk spectrum. Higher-risk assets are assigned more conservative parameters to mitigate systemic risk.

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Two-Phase Evaluation Process

1. Technical & Centralization Risk Assessment

   • Smart contract safety

   • Governance design and decentralization

   • Oracle dependency

   • Bridge and protocol integration reliability

2. Market & Liquidity Risk Modeling

   • On-chain liquidity depth and trading volume

   • Slippage sensitivity

   • Asset volatility

   • Establishes LTVs, liquidation thresholds, and caps

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Governance and Oversight

• The Mars Protocol DAO is responsible for applying this framework.

• Risk parameters can be updated over time as asset performance, liquidity, or market conditions evolve.