Everlend Governance & Risk Framework

  1. Establish a minimum set of requirements a new lending protocol needs to meet to be incorporated into Everlend.
  2. Set the corresponding risk parameters for that protocol.

New Protocol Incorporation Process

  1. A counterparty and smart contract risk assessment. This first filter is intended to mitigate the risk of incorporating vulnerable protocols at the counterparty and technical layer.
  2. An assets and risk parameters assessment. This second filter will evaluate in detail the assets that the assessed protocol has incorporated, as well as the risk parameters associated with each of those assets. This step is intended to mitigate the risk of incorporating protocols with low quality assets or unsafe risk parameters.
  3. Only when a protocol passes the above filters should governance proceed to establish the specific risk parameters for the protocol. The following figure summarizes how this process would work at a high level.
  • Time since launch.
  • Honey pot: Daily sum of the project’s Total Value Locked (TVL) since launch. For standardization purposes, this value is divided by $365B ($1B per day for 365 days) to arrive at the Honey Pot coefficient.
  • Audits quality (qualitative): Thoroughness and quality of audits performed on the project.
  • Quality of smart contracts (qualitative): Measures the overall riskiness of the smart contracts. Evaluates the use of best practices, the thoroughness of the tests and the documentation, among other factors.
  • Team: Evaluates the reputation and integrity of the team behind the project.
  • Smart contracts centralization (qualitative): Measures the level of centralization of the most important contracts of the protocol.
  • Combination 1 covers the case where there’s still some centralization around the key smart contracts of the protocol, but the team behind the project is excellent all around and there’s a plan in place for progressively decentralizing the protocol.
  • Combination 2 is the case where the team behind the protocol is completely unknown (anonymous and has no reputation) but the key contracts are immutable or are managed by a DAO with strong processes and guarantees in place.
  1. The asset is evaluated and scored following the Mars risk framework.
  2. If the asset doesn’t pass the minimum requirements according to the Mars risk framework, the protocol will not be incorporated into Everlend.
  3. If the asset passes the minimum requirements, then LTV is calculated for the given asset using the Mars risk framework and the following condition needs to be met for each asset i:
  1. The maximum allocation of funds that Everlend will dedicate to that particular protocol. This parameter is intended to reduce the risk of concentration to any particular protocol and will depend on the number of protocols incorporated into Everlend.
  2. The maximum amount of funds that Everlend will allocate to a particular market within that protocol. This parameter is intended to mitigate the risk of illiquidity in any given market Everlend has deposited funds into.

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