# In Practice

## Market Risk Assessment Checklist

To effectively understand and assess market risks in a DeFi protocol, participants should consider the following checklist:

1. **Market Risk Assessment Report Availability:**
   * Confirm whether the DeFi protocol provides a comprehensive market risk assessment report. This report is crucial for understanding the risks associated with participating in the protocol.
2. **Third-Party Assessment:**
   * Determine if the market risk assessment was conducted by an independent third party. Independent assessments can provide an unbiased view of the risks.
   * If the assessment was done by a third party, conduct due diligence on the firm that performed the market assessment. Verify their credentials, reputation, and experience in the field of DeFi and risk assessment.
3. **In-House Assessment:**
   * If the assessment was done in-house, identify the team or individuals who conducted it. Review their profiles, qualifications, and experience to assess their capability in accurately identifying and assessing market risks.
4. **Content and Scope of the Market Risk Assessment:**
   * The market risk assessment should, at a minimum, include:
     * An analysis of price volatility risks.
     * Liquidity risks and how they affect the protocol's operations.
     * Counterparty risks, considering the decentralized nature of DeFi.
     * Systemic risks that could arise from interconnectedness with other protocols and the broader DeFi ecosystem.
     * Strategies for managing and mitigating these risks, including specific mechanisms like liquidation thresholds, safety modules, and any insurance or reserve funds.
     * Historical data or case studies demonstrating how the protocol has responded to past market stress events.
     * Simulated stress testing across historical and hypothetical volatility scenarios
     * Assessment of liquidation mechanisms and liquidator incentives
     * Analysis of cascade risks across correlated assets
     * Evaluation of backstops like insurance funds
     * Actionable recommendations for risk mitigation
5. **Ongoing Risk Monitoring/Risk Dashboard Availability:**
   * Check if the DeFi protocol offers a risk dashboard that provides recently updated or real-time data to monitor various market risks. Such a dashboard can offer insights into current risk levels, trends, and the effectiveness of risk mitigation strategies.
   * Does it track metrics like:
     * Collateralization ratios
     * Liquidation buffers
     * Asset correlations
     * Insurance fund balances
     * Are there warning triggers tied to pre-defined risk thresholds?
     * Is the dashboard transparently displayed or auditable?
6. **Upgrade Governance**
   * Parameter Governance: Review processes for changing risk parameters/ Review governance processes that guide risk parameter changes
   * Prioritization Cadence: Assess pace of implementing model recommendations
   * Architecture Communication: Clarity provided on future stability upgrades/Check that future upgrades to stabilize architecture are clearly communicated

## Explore

### Aave Market Risk Assessment

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### Uniswap Market Risk Assessment

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<https://risk.gauntlet.xyz/protocols/aave>

<https://docs.aave.com/risk/v/aave-v2/audits/gauntlet>

<https://gauntlet.network/reports/aave>&#x20;

<https://defirisk.intotheblock.com/>