Carmine is on a mission to address on-chain risks, specifically focusing on standardized risk in the realm of DeFi. While there is much work ahead of us, today marks a major milestone as we unveil the first version of our monitoring tool: DeRisk!
WE ARE RELEASING DERISK!
DeRisk is a tool designed to comprehensively monitor risks in the decentralized finance space. In this initial iteration, our focus is on assessing the risk that lending protocols on StarkNet may encounter with under-the-water loans.
Understanding Under-the-Water Loans:
These events, also known as shortfall events or bad debt, occur when loans become non-liquidatable. This happens when the value of collateral drops below the value of borrowed assets. In such situations, there is no economic incentive to repay or liquidate the loan.
These events happen once in a while, so why should we care? Even though it happens very rarely, the impact of these events is quite significant and that’s the main problem. With DeFi expected to get more complex these events could have a far-reaching effects on individual protocols and the entire DeFi ecosystem.
How DeRisk Helps:
DeRisk reveals the conditions under which under-the-water loans can occur and highlights problematic situations.
An interesting thing is that lending protocols have the option to adjust required collateral, not only by increasing it but also by allowing for less collateral.
Simplicity of DeRisk:
The tool analyzes all loans on StarkNet, focusing on liquidation prices and volumes, comparing them against the expected available liquidity on Automated Market Makers (AMMs). Expected available liquidity considers potential liquidity on AMMs if prices were to move without significant changes in user behavior.
The interesting thing is that under the water loans are not a problem only for lending protocols but also for DEXes/CEXes that have leverage.
Examples
Recent incidents, such as the dYdX exploit on the YFI token resulting in a $9 million loss, emphasize the importance of addressing under-the-water loans. Other well-known examples include CRV token and Mango Markets.
What are the consequences of DeRisk?
By gaining a better understanding of ecosystem risks, lending protocols can effectively manage risk, enhancing security and stability for users and the overall ecosystem. Additionally, this insight lays the foundation for an upcoming insurance project that will offer coverage against under-the-water loans, improving risk management and expanding the range of tokens accepted as collateral.
Summary
Always DYOR and don’t forget to know what risks you are taking on.
Risk of acquiring under the water loans is a significant risk that cannot be overlooked. With DeRisk we can shine more light on the problem and build solution(s) that will mitigate or solve it.
Always conduct your own research (DYOR) and be aware of the risks you are taking. The risk of acquiring under-the-water loans is significant and cannot be overlooked. DeRisk sheds light on this problem, paving the way for solutions to mitigate or solve it.
Links
App: https://starknet.derisk.carmine.finance