QX DeFi Risks Compass
  • 💡GETTING STARTED
    • About
    • License
    • How to Give Attribution For Usage of QX DeFi Risks Compass
  • 🏦Risks in TradFI
    • Global Finance - Key Framework
    • Risk Frameworks
    • Basics I - Terminology & Concepts
  • ⛓️RISKS IN DEFI
    • Deciphering DeFi Risks
    • DeFi Risk Management
    • EEA DeFi Risk Assessment Guidelines
    • Basics II - DeFi
  • 🥷Systematic Risks
    • Market Risk
      • Defining Market Risk
      • Assessing Market Risk
      • Managing Market Risk
      • In Practice
      • Liquidity Risk
        • Defining Liquidity Risk
        • Assessing Liquidity Risk
        • Managing Liquidity Risk
        • In Practice
    • Compliance & Legal Risk
      • Defining Compliance & Legal Risk
      • Assessing Compliance Risk
      • Managing Compliance Risk
      • In Practice
    • Bridge Risk
      • Defining Bridge Risk
      • Assessing Bridge Risk
      • Mitigating Bridge Risk
      • In Practice
    • Oracle Risk
      • Defining Oracle Risks
      • Assessing Oracle Risks
      • Managing Oracle Risks
      • In Practice
  • 🥷UNSYSTEMATIC RISKS
    • Software Risk
      • Defining Software Risks
      • Assessing Software Risks
      • Managing Software Risks
      • In Practice
    • Economic/Financial Risks
      • Defining Economic Risks
      • Assessing Economic Risks
      • Managing Economic Risks
      • Tokenomics Risk
        • Defining Tokenomics Risks
        • Assessing Tokenomics Risk
        • Managing Tokenomics Risk
      • MEV Risk
        • Defining MEV Risk
        • Assessing MEV Risk
        • Managing MEV Risk
      • Credit Risk
        • Defining Credit Risk
        • Assessing Credit Risk
        • Managing Credit Risk
    • Governance Risk
      • Defining Governance Risk
      • Assessing Governance Risk
      • Managing Governance Risk
    • Standards Conformance Risks
      • Defining Standards Conformance Risks
      • Assessing Standards Conformance Risks
      • Managing Standards Conformance Risks
    • Security Risk
      • Security Risk Assessment
      • Security Risk Mitigation
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On this page
  • Economic & Financial Risks
  • Tokenomics Risks
  • Impermanent loss
  • MEV Risk
  1. UNSYSTEMATIC RISKS
  2. Economic/Financial Risks

Defining Economic Risks

Economic & Financial Risks

Economics and Financials risks are tied to the economic mechanisms and financial management of a DeFi protocol. Some examples:

  • Unsustainable reward/yield generation leading to depleted treasuries

  • Poor parametrization and monetary policy decisions

  • Lack of adequate reserves to cover losses or stabilize collateral

  • Infeasible assumptions about user behaviors within mechanisms

  • Intrinsic Asset Risk: UST, Cream, USDC ?

Tokenomics Risks

Tokenomics Risks are specifically associated with the token model and incentive structure design of a DeFi protocol. This includes riskss such as:

  • Impermanent loss disincentivizing liquidity providers

  • Inadequate token incentives leading to loss of users

  • Token distribution allowing misuse of governance powers

  • Volatile token prices impacting protocol sustainability

Supply-side: impermanent losses

Demand-side: liquidation, bad debt

The difference between Economic Risk and Tokenomics Risks

Tokenomics risks and economic/financial risks are related but distinct categories of risks for DeFi protocols. Tokenomics risks focus specifically on the protocol's native token model, while economic/financial risks encompass wider risks from parameters, yields, and flawed assumptions. But these two realms often influence each other.

Impermanent loss

MEV Risk

PreviousEconomic/Financial RisksNextAssessing Economic Risks

Last updated 1 year ago

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