> For the complete documentation index, see [llms.txt](https://docs.ethosis.org/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.ethosis.org/risk/framework.md). # How Ethosis thinks about risk Risk management is not a feature of Ethosis; it is the product. Lenders are promised solvency, borrowers are promised liquidations that are fair and predictable, and everything else follows from those two commitments. Below is the register of material risks with the mitigation for each. Dedicated pages then go deeper on oracles, the sequencer, the issuer, and the past failures that shaped the design. ## Register | Risk | Severity | How it is handled | | ------------------------------------------------------------------------------------- | ------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | Issuer risk on Stock Tokens (a Jersey debt instrument with freeze rights) | High | Priced into tier LTVs; bytecode reviewed for freeze roles; proof of reserve shown wherever a feed exists; per-token concentration caps. See [Counterparty risk in the token issuer](/risk/issuer.md). | | Price gaps over weekends and closed markets | High | Session-aware haircuts, bounded auction floors, lender opt-outs, conservative tier LTVs. See [Price feeds and trading sessions](/risk/oracles.md). | | Shallow DEX liquidity in single names | High | Dutch auctions rather than selling into a DEX; in-kind liquidation; per-token caps sized to observed depth. | | Regulatory change (how the lender-side instrument is classified across jurisdictions) | High | Lending restricted to professional lenders; geo-fencing; modular eligibility so rules can be tightened without a redeploy. See [Compliance model](/compliance/model.md). | | Sequencer centralisation or downtime | Medium | Grace period driven by the uptime feed; every function reachable via the L1 delayed inbox. See [When the chain fails](/risk/sequencer-and-chain.md). | | Oracle failure or manipulation | Medium | Chainlink Feeds and Streams cross-checked against each other, staleness bounds, move caps, halt on `oraclePaused`; always price the exact token, never a wrapper. | | Smart-contract bugs | Medium | Minimal immutable core, formal verification, two audits, a public contest, a bounty, staged caps. See [Security programme](/architecture/security.md). | | Too few lenders, an empty book | Medium | Standing offers, yield on idle capital, seeded professional lenders. | | Chain activity drifting towards memecoins instead of RWAs | Medium | Concentrate on the existing $100M-plus of Stock Token and RWA holders; growth follows Robinhood's tokenisation roadmap. | | Pooled markets adding single-stock collateral | Low to Medium | Fixed terms, isolation, long-tail coverage and syndication, none of which a pooled market can structurally offer; interoperate with them rather than compete. | ## The parameter process Tier LTVs, haircuts, per-session staleness bounds, move caps, the auction curve, the penalty split, per-token caps, and the whitelists of vaults and oracles are all risk parameters, and each one is: 1. proposed with a written rationale, backtested against historical prices where that is possible, 2. published for the whole timelock period, 3. executed on-chain, emitting an event, 4. recorded on the public governance log. The process is described in [Parameter governance](/transparency/governance.md). ## A deliberately guarded market Ethosis runs under tight constraints on purpose: * Only Tier A and Tier B collateral. * A published dollar cap on each token, starting small. * Only professional lenders, and only verified business or professional borrowers. * A public risk page that shows LTV distribution, concentration, bad debt (with a target of zero) and the liquidation record, including realised prices against the oracle. Caps are raised as liquidation and repayment data accumulates, and not before. ## Where the protection ends Stating the limits plainly matters as much as listing the mitigations: * A lender who misprices a slice bears the loss on that slice. That is intended. * A borrower who disregards warnings is liquidated at whatever the auction clears at, which can be below the oracle, most of all when the market is closed. * Issuer failure is a genuine loss scenario. LTVs shrink it but do not remove it. * Tier D loans have no liquidation at all; they depend entirely on the borrower repaying or the lender taking the collateral. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.ethosis.org/risk/framework.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. 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