Risk DAO releases risk management dashboard for Aurigami Finance
A new standard in risk analysis tools
Intro
Today we are happy to announce our new risk management dashboard for Aurigami Finance.
DeFi is still a growing ecosystem. Tools and best practices are being forged too many times in the fire of bad experiences and financial loss. Recent market declines and liquidity contraction were a wake-up call for many DAOs, devs, and users across DeFi. The realization, that risk management is no longer a “nice to have” feature, but rather a core component that should get critical attention — has struck.
In order to provide an in-depth analysis of the state of platforms, for both the devs behind the protocols and the users who provide the funds for it, new tools had to be created.
The Risk DAO mission is to do precisely this — to provide open-source tools for analyzing risk across DeFi in order to provide all relevant actors with accessible and insightful data to better monitor and manage risk associated with DeFi lending platforms.
After creating the Bad Debt dashboard, and publishing risk audit reports, we are excited to share today the new Risk DAO Dashboard for Aurigami Finance, with more partners coming soon.
Risk Management by RIsk DAO
According to DeFi Llama, lending, borrowing, and CDP protocols account for over 45% of DeFi’s total value locked. Yet the tools to monitor and manage risk on these platforms are still very scarce.
Just as the DeFi ecosystem has learned to put best practices in place when it comes to mitigating smart contract risk, the same is still to be made for economic risk, which is the root cause of hundreds of millions of dollars that have been wiped out or put at risk due to mismanagement and bad design of lending and borrowing markets in DeFi.
The crash of LUNA/UST and the ripples it created across DeFi have made the need for objective third-party risk assessments and frequent monitoring obvious more than ever, aligning it with the smart contract security measurements taken through hiring audit firms.
The Risk DAO new methodology takes into account real-world liquidation data of popular assets from centralized exchanges, along with the price trajectory of the assets in question. We extrapolate the liquidation sizes and price trajectory to the asset we wish to analyze and simulate the outcome based on the asset’s available DeFi liquidity. This approach eliminates most of the assumptions that were made till now in risk assessments in the DeFi ecosystem regarding user behavior during market crashes and makes it more feasible to analyze the risk of a platform, including for multichain lending platforms, where the data for user behavior is even more sparse.
The Risk DAO Dashboard
The new dashboard presents Aurigami’s current state as it is reflected from a variety of data points, including collateral and debt asset profiles, assets’ distribution, current available DEX liquidity for executing liquidations, and more.
The Risk DAO gives recommendations regarding risk factor adjustments (e.g. collateral factors), which are based on the analysis of tens of thousands of simulations we ran at the back.
The Dashboard also includes a “Sandbox” where collateral factors can be set for each asset according to different supply and borrow caps, including dependencies between different assets.
The basic view includes only 3 sections — the System Status, Overview, and Asset Distribution. Once the Pro View toggle is switched on users can have a more detailed view of the dashboard including recommendations on Collateral Factors, the Sandbox, Open Liquidations, and more.
Below is a brief overview of the different sections in the dashboard -
System Status
Gives a “bottom line” regarding the health status of the platform which is based on a simulation of the current state of the platform in case the “worst day” in ETH’s price drop history would re-occur today. The “Worst Day” as of today is March 12, 2020 — aka “Black Thursday”.
We indicate 2 metrics to measure the performance of the platform under “Worst Day” scenario:
- Value at Risk — the bad debt that would be accrued in the platform
- Liquidations — the amount of liquidations to be processed by the platform without creating bad debt.
Overview
Presents the distribution of Collateral and Debt by the different assets in the platform.
Asset Distribution
This section provides data on each asset in the market, including potential liquidations according to price changes of each asset (seen in the graph), as well as leading stats on each asset.
Users can use the toggle button at the top to view data with or without correlated debt and collateral of the same asset. The table also includes a list of the Top 10 Accounts and indicates the presence of accounts holding over 10% of the asset with a *. A drop-down list presents these top accounts.
As some of the assets are also being borrowed, liquidations can be triggered also when the price moves up, making the collateral ratio smaller.
Collateral Factors
We use three different models to simulate, stress test, and assess the risk presented by collateral factors in the platform — and provide recommendations accordingly.
DAOs and devs can use these 3 verticals to set more or less conservative CFs as they factor the different recommendations together. Whenever the recommended CF is lower than the current one, it will be indicated by a *.
- Worst Day Scenario — simulates liquidations and the bad debt that might be accrued if the worst day in the history of ETH price drop (e.g. Black Thursday) will re-happen. The recommendation is in the form of the highest CF that will prevent bad debt from being created on such a drop with the current user profiles on the platform.
- Current Usage — simulates the platform’s stability according to the current supply and borrow usage ratios of each market in the platform.
- Existing Caps — simulates the platform’s stability according to the existing Supply and Borrow Caps set by the platform.
Sandbox
This table lets users set different Supply and Borrow Caps to set a desired CF. Users can use the recommendations made by the simulation to see the different dependencies between the assets in the platform.
Open Liquidations
Open Liquidations will be shown once the total amount of liquidatable assets in the platform is bigger than $1k, as many times some dust (frictions of assets) remains after closing a loan.
Oracle Deviation
Oracles are one of the critical aspects of any DeFi lending platform and was the root cause of many exploits in the past. This section monitors the deviation of the oracle price used by the platform from CEX price and DEX price collected by the dashboard. Alerts will be triggered once a significant deviation is found.
DEX Liquidity
DEX liquidity is crucial for executing liquidations properly. This section monitors DEX liquidity across Aurora Network to check the available liquidity of each asset against different assets in the platform. Specifically, it quotes the maximum liquidation size that can be executed in a single transaction (e.g. a flashloan) according to the current DEX liquidity.
Risk DAO collaborated with Kyber Swap to get the aggregated DEX liquidity across Aurora for this risk assessment.
Besides the max liquidation size graph, users can track the leading LP pair for each asset, including the top 1 and top 5 LP accounts. We believe this provides more insights into the stability of the liquidity in the pool.
For any feedback please join the Risk DAO Discord.
About Risk DAO
Risk DAO is a service DAO focused on providing a new, open-source risk assessment framework, associated audits, and dashboards to stress test, monitor, and manage risk in DeFi lending and borrowing protocols as well as L1 and L2 networks.
You can follow us on Twitter here. You can join our Discord here.
