Risk score calculation is the process by which the risk engine determines a risk score. The risk score demonstrates the level of risk that is associated with a specific asset, portfolio, pool or provider.
The risk engine determines a risk score by comparing sets of attributes that identify an asset. These sets of attributes are harvested each time when a new block is mined and analyzed in real-time from mempool trough AI & ML models based on previous data history sets.
The following process describes how risk assessment works:
The incoming data set related to a specific asset.
The risk engine collects all available data set attributes from the newly mined block.
After the attributes are collected, the risk engine:
- Calculates attributes average weight based on data sets history and new data sets
- Calculates risk score (risk score is a number between 1-10)
Risk Score Values
>= 3 && <= 6
Risk Score Formulas
Asset (pool) risk score:
assetRiskScore = (total weight of mismatched asset attributes /
total weight of all asset attributes) × 10
Portfolio risk score:
portfolioRiskScore = (sum of portfolio assets risk score values /
number of portfolio assets)
Protocol risk score:
protocolRiskScore = (sum of protocol pools risk score values /
number of pools)
Impermanent Loss Estimation
Impermanent loss occurs when the price of the assets in the pool changes. (change is calculated by price change ratio in the pool and not in the open market)