DeFi Risk Frameworks

DeFi risk frameworks are structured methods for identifying, measuring and limiting the risks of using or building decentralized finance protocols. They usually break risk into categories, including smart-contract bugs, oracle failure, liquidity and market risk, collateral quality, governance capture, centralization of admin keys and legal exposure, and then score each protocol or asset against them. Lending protocols use such frameworks to set loan-to-value limits, liquidation thresholds and caps for each collateral type, often with advice from specialist risk firms; funds, exchanges and institutional investors use them for due diligence before allocating capital. Inputs typically include code audits, on-chain liquidity data, stress tests and incident history. The approach adapts familiar risk management practice to open, code-based systems. Also see decentralized lending protocol and collateral factor.