Risk scores are a commonly used way to classify the risk of an asset. In the traditional world, rating agencies like Standard & Poor’s are identifying bonds and associating them with the proper risk scores eg. “AAA” (Best possible score).
Kudo’s risk evaluation framework works in a similar way. “D” is the lowest possible rating (highest risk), while “AAA” is the best score (lowest risk). This helps investors assess the credit risks from the loan of interest.
The risk score is determined by several parameters that present a real threat to the loan. All parameters are publicly available.
Here’s an overview of the ratings:
| Ratings | Definition | Risk Score |
| AAA | Rated as the highest quality and lowest credit risk. Borrower has extremely strong financial security characteristics. | 100 – 80 |
| AA | Rated as high quality and very low credit risk. | 80 – 70 |
| A | Rated as upper-medium grade and low credit risk. | 70 – 55 |
| BBB | Rated as medium grade with marginal financial security and moderate credit risk. | 55 – 40 |
| BB | Judged to have speculative elements and a significant credit risk. | 40 – 25 |
| CCC | Rated as poor quality and very high credit risk. | 25 – 15 |
| *CC | Near or in default, but some possibility of recovering principal and interest. | 15 – 0 |
| *D | Rated as the lowest quality, default and low likelihood of recovering principal. ( D rating can be awarded in case of collateral asset ongoing attack) | 0 |
*Temporary rating awarded to the loan
Summary of the Risk Parameters:
| Parameter | Weightage |
| Asset intrinsic risk | 8% |
| Collateral Liquidity | 15% |
| Volatility bands | 5% |
| Credit score | 10% |
| Exchanges | 10% |
| Token transfers | 5% |
| Socials & Community | 7% |
| Market Capitalisation | 25% |
| Token Distribution, lockups & Issuance Schedule | 15% |
The crypto industry is changing. Rapidly. Did anyone in the bear market in 2018 foresee all the great innovations that happened in the last years? We don’t think so.
For this reason, we decide to keep the risk factors subjective to change. This enables us to adapt Kudo to potential new market conditions even we didn’t see coming.
Kudo’s risk score presents users with a single metric to assess the risk of a loan. This provides users with information they would otherwhise have to look out for themselves. We know very well that time is money and that’s one of the reasons why we created this feature.
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