Consensys has introduced a scoring system for DeFi platforms, in an effort to assist users in evaluating platform risk.

The company has highlighted a general lack of awareness regarding the risks involved with DeFi platforms, noting that many users seem to be concerned only with rates of return.

The scoring system will provide a simple rating out of 10, designed to provide a reliable risk analysis at a single glance.

 “DeFi Score is a single, consistently comparable value for measuring protocol risk, based on factors including smart contract risk, collateralization, and liquidity.”

How it works

The system takes into consideration a variety of factors, which have been categorized into three distinct groups:

  1. Smart contract risk
  2. Financial risk
  3. Other considerations

Smart contract risk

Smart contract risk evaluates the estimated safety of a platform’s code itself. It bases the score upon how battle-tested a protocol may be, and which mechanisms are in place to eliminate bugs and errors.

Factors which affect smart contract risk include smart contract auditing, formal verification, and bug bounty programs.

Financial risk

Financial risk factors are to do with how the platform’s instruments work.

This includes analyzing the liquidity of the assets involved, their volatility, and the nature of collateral requirements.

Other considerations

The remainder of the risk factors have been put into a third category, simply labelled “other considerations”.

In here, we can currently find risks associated with regulation, as well as an insurance risk. Despite the shortlist at present, a wide range of additional risk factors could be considered for this category.

Future developments

The first iteration of the framework is open-sourced on GitHub, and Consensys are encouraging the community to build upon the system.

Some planned updates of their own will feature further risk factors, including centralization issues, oracle risks, and liquidation policies.

They are also looking to break the score down further into ratings for each category, to provide users with more profound insight.

The ultimate goal is to decentralize the rating system into an autonomous organization.

If you’d like to read more about the DeFi Score system, you can check it out here.