RedStone Introduces DeFi Risk Ratings Following Major Crypto Market Decline

RedStone unveils DeFi risk ratings weeks after $20B crypto market wipeout

Summary:
RedStone, a modular oracle network, has launched Credora, a decentralized finance (DeFi) risk ratings platform that enhances transparency and analytics in lending protocols. This development comes shortly after a significant market downturn that saw $20 billion wiped from the crypto market.

Key Takeaways:

RedStone has introduced Credora, a risk ratings platform for DeFi.
The platform aims to improve transparency in lending with dynamic risk scores.
Credora has partnered with Morpho and Sparks for its initial analytics.
The launch follows a $20 billion liquidation in the crypto market, highlighting the need for better risk management in DeFi.
The ratings will provide insights into lending pool risks, essential for institutional investors.

Evolution from Oracles to Risk Intelligence

RedStone’s new initiative positions the company among several blockchain oracle providers that are expanding their services beyond mere data delivery to include integrated risk analytics. On October 14, S&P Global Ratings collaborated with Chainlink to provide on-chain risk profiles for stablecoins, benefiting traditional finance entities looking to venture into the stablecoin market. This partnership allows access to evaluations of how well each stablecoin maintains its peg.

Additionally, the U.S. government has recently enlisted oracle providers like Chainlink and Pyth to enhance transparency for economic data, making it easier to analyze economic risks. Blockchain security firm Hacken also announced a move towards addressing DeFi risks, launching Yield Audits, which evaluate the security and resilience of stablecoins and DeFi yields. Hacken aims for these audits to serve as a "missing credit-rating equivalent" for crypto yields, encompassing security, financial sustainability, and risk assessments.

Credora consolidates creditworthiness data, default probabilities, and collateral analysis into a single ratings framework, enabling users to compare lending positions on platforms like Morpho or Spark based on relative risk scores. This feature is particularly beneficial for institutional investors exploring tokenized treasuries and DeFi products. “Credora marks the beginning of a new understanding of risk versus yield in DeFi,” remarked co-founder Marcin Kaźmierczak.

Understanding the Functionality of Credora

According to Kaźmierczak, Credora analyzes a range of factors affecting the risk associated with different lending pools or assets in DeFi. By utilizing historical data, statistical simulations, and credit analysis, Credora quantifies the likelihood of loss in any lending pool. “This data allows for output mapping to ratings, enabling comparisons across diverse opportunities or even off-chain products,” he elaborated.

Credora has successfully rated Morpho and SparkLend, although these ratings won’t be visible on the platforms just yet. “We are collaborating with Morpho and Spark to incorporate these ratings into their front-end interfaces, with the first displays anticipated around mid-November,” Kaźmierczak disclosed.

Addressing the $20 Billion DeFi Market Wipeout

The timing of Credora's launch highlights the increasing need for systemic risk management in DeFi, coming just weeks after the market crash on October 10, which resulted in over $20 billion in liquidated leveraged positions across various platforms. This event, coupled with Stream Finance’s $93 million loss, has prompted investigations into the interconnected risks between DeFi and stablecoins. Analysts have identified $284 million in associated stablecoin risks through Stream Finance.

By implementing standardized risk scoring, RedStone aims to illuminate previously hidden risks before further downturns occur. “Historically, DeFi participants had to compile risk information from various sources or make decisions based solely on APY,” stated Spark co-founder Sam MacPherson. “Credora enhances clarity regarding yield and risk.”