We are excited to engage the Morpho community as we unveil Risk Ratings on Morpho Vaults! Our work aims to empower Morpho users with clear, actionable insights to evaluate and navigate lending opportunities.
In progressing towards this release, the Credora team has absorbed feedback from a variety of stakeholders, including Morpho, active curators, and other risk managers throughout the ecosystem. Their insights are embedded into the approaches and methodologies powering outputs, as we believe openness and transparency drive better risk frameworks.
The integration will come at no cost for the Morpho DAO, as vault curators will have the ability to opt-in to Credora risk ratings.
The Credora Network
Backed by Coinbase, Hashkey, Polychain, S&P and other prominent crypto investors, Credora has been a pioneer in onchain risk assessment, combining the rigor of traditional credit analysis and cutting-edge frameworks tailored for digital assets.
We recently launched the Credora Network, a consensus rating protocol purpose-built for DeFi. The network upgrades the traditional ratings model, combining transparent methodology development and expert input from active industry participants. Think of it as a community-driven standardized ratings framework, and a decentralized ratings committee. The outputs are consensus asset ratings, capturing industry nuance.
Through a layered approach, the Credora Network powers Morpho vault ratings, helping users quantify risk and make confident decisions.
Why Risk Ratings?
As DeFi grows, the expanding complexity of assets and protocols introduces risks that aren’t always immediately apparent. The Morpho design enables an incredible number of vault compositions, unlocking significant opportunities for DeFi users.
Investment decisions are always a matter of risk-reward. Intuitively, users recognize that opportunities having 50%+ yields are likely riskier than 5% alternatives. By quantifying risk, the Credora Network provides metrics to help you decide if you are adequately compensated for the additional risk.
Vault ratings are themselves dependent on market ratings and underlying asset ratings. The below summarizes the end-to-end approach, where additional details are available in Credora Network documentation.
- Collateral Assets: Analysis encompassing offchain and onchain risks for a variety of asset types, including stablecoins, wrapped tokens, liquid staking tokens, and liquid re-staking tokens.
- Markets: Simulations on active loans across markets, utilizing collateral asset risk, volatility, liquidity, and other market variables as inputs. These additionally include an analysis of oracle and Morpho protocol risks.
- Vaults: Analysis of the Curator’s Morpho experience and track record, as well depositor protection configurations, including guardians and time locks.
Methodology and consensus metrics across collateral assets are available on Credora’s platform, including a Probability of Default (PD), Implied Rating, and Score. For markets and vaults, Credora quantifies a Probability of Significant Loss (PSL), which are similarly mapped to an Implied Rating and Score. As DeFi market participants are less familiar with traditional market ratings scales, vault ratings are displayed on Morpho using a more intuitive scale (A+ through D).
Ratings provide a simple mechanism for curators to give depositors a way to quantify risk. The display of a vault’s rating requires curator approval. As more curators add ratings to their Vaults , users will increasingly be capable of comparing risk-reward across a broader range of opportunities. If there are specific unrated vaults you are interested in seeing risk metrics on, please highlight them in the Morpho or Credora forums (we have likely already rated them)!
Community-Driven Approach
The Credora Network’s integration with Morpho is a significant step toward standardizing DeFi risk assessment.
Building this future requires collaboration with the Morpho community. The ratings are dynamic, and will evolve considering input from the Morpho community and risk managers throughout the industry. All feedback is welcome, including how the Credora Network can produce metrics which further enhance users ability to navigate DeFi lending.
Whether you’re an institutional lender, a DeFi risk expert, or an individual contributor, there are ways to actively engage:
- Join the Credora Forum: Your input is vital in ensuring ratings remain accurate, relevant, and actionable.
- Provide feedback on how risks are being measured.
- Propose new metrics or adjustments to the methodology.
- Challenge specific ratings with data, analysis, or real-world insights.
- Apply to Be a Reviewer in the Credora Network: Bring your expertise to the network by analyzing data and contributing to ratings. As a Reviewer, you can add your nuance and interpretation of the data, directly influencing DeFi risk transparency’s evolution. Apply now.
Together, the Credora Network and Morpho are paving the way for a more accessible DeFi landscape.