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.
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.
Risk Assessment Tools
Mars combines traditional and crypto-native tools to quantify asset risk:
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.
Two-Phase Evaluation Process
Technical & Centralization Risk Assessment
Smart contract safety
Governance design and decentralization
Oracle dependency
Bridge and protocol integration reliability
Market & Liquidity Risk Modeling
On-chain liquidity depth and trading volume
Slippage sensitivity
Asset volatility
Establishes LTVs, liquidation thresholds, and caps
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.
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