The DeFi Score is an invaluable tool that allows users to evaluate the risks associated with lending platforms on Ethereum. In this article, we’ll guide you through the process of leveraging this score effectively, breaking down its components and providing troubleshooting tips to ensure a smooth experience.
Table of Contents
Example Scores
Understanding the DeFi Score is made easier with examples. These demonstrate how various factors contribute to a score, making it straightforward for users to grasp the underlying principles.
Implementation
If you’re eager to calculate the score for various DeFi platforms, follow the implementation instructions provided in the documentation.
Components of the DeFi Score
The DeFi Score is organized into three main categories: Smart Contract Risk, Financial Risk, and Centralization Risk. Let’s break down each category with an analogy for better understanding.
Smart Contract Risk
Imagine a bank vault (the smart contract) designed to keep valuables safe. The stronger the vault, the less likely it will be breached. Here are the key factors:
- Smart Contract Security (45%): Similar to ensuring a vault has no flaws, the smart contract needs robust audits and no critical vulnerabilities.
- Time on Mainnet: Just as the age of a vault’s design may establish trust, longer operation in the blockchain adds reliability.
- No Critical Vulnerabilities: A vault should be impenetrable; similarly, a contract should showcase no exploitable weaknesses.
- Recent Audit: Periodic checks on the vault’s integrity are like contract audits within the last year.
- Bounty Program: Like having a reward for identifying vault security flaws, this incentivizes bug discovery.
Financial Risk
Financial risk can be likened to predicting whether the vault is sufficiently full to meet demands:
- Collateral (20%): Assessing whether the assets backing the loans (like precious items) provide enough security.
- Liquidity (10%): The vault must be able to dispense valuables quickly, similar to ensuring funds can be drawn on demand.
Centralization Risk
Last but not least, consider who controls the vault:
- Protocol Administration (12.5%): How many keys are needed to unlock the vault? More keys reduce risks.
- Oracles (12.5%): Just as a vault might rely on external assessors for value determination, the protocol needs reliable data sources.
Further Reading
To deepen your understanding, refer to our detailed whitepaper explaining the workings of the DeFi Score methodology.
Troubleshooting
As you engage with the DeFi Score, you may encounter some challenges. Here are some troubleshooting tips:
- Ensure that you are using the most current version of the DeFi Score implementation.
- Check if the DeFi lending platform you are evaluating has a recognized audit—this factor significantly impacts Smart Contract Risk.
- Look into the liquidity analysis regularly, as fluctuating market conditions can affect score results.
- For more insights, updates, or to collaborate on AI development projects, stay connected with fxis.ai.
At fxis.ai, we believe that such advancements are crucial for the future of AI, as they enable more comprehensive and effective solutions. Our team is continually exploring new methodologies to push the envelope in artificial intelligence, ensuring that our clients benefit from the latest technological innovations.