Methodology

Beta uses an isolated collateral model for tighter fund security. This means that if an asset is compromised, the entire protocol remains safe. The isolated model gives Beta users confidence that their assets are safe even if Beta has a market with a compromised asset. Verified markets configured by governance are evaluated by smart-contract risk, counterparty risk, and market risk. These risks inform the risk parameters that are set for these assets.

Risk Factors

Smart Contract Risk

Smart-contract (SC) risk estimates the likelihood of issues emerging with the technical implementation of an asset. SC risk of an asset is assessed by:

• The number of transactions

• The number of holders

• The quality of the audits conducted.

• The presence of bug bounties

• The TVL of the asset if it takes user deposits

• The age of an asset

Tier	Txs	Users	Age of Asset	Audits/Bounties	TVL
S	1,000,000+	100,000+	2 years +	Several high quality Audits & $1mm+ bounty	$500m+
AA	500,000+	50,000+	1 years +	High quality Audit & second audit & $500k+ bounty	$100m+
A	250,000+	25,000+	6 months +	High quality audit & $100k+ bounty	$50m+
BB	100,000+	10,000+	3 months +	High quality audit & $50k+	$10m+
B	50,000+	5,000+	2 months +	Several audits & $10k+	$1m+
C	< 50,000	< 2,500	< 2 months	An audit & some unit/integration tests	< $1m

Counterparty Risk

Counterparty (CP) risk is an approximate measure of the centralization of an asset. CP risk of an asset is assessed by:

• Qualitative assessment of the centralization of an asset and its developers

• The governance structure of an asset

• The exposure of the asset to regulatory risks

• The asset reliance on a custodian

• The distribution of governance power and implementation of treasury/contract management. E.g. n of k multi-sig vs. single signer

• How mutable are the market characteristics of an asset due to governance

Tier	Team risk	Centralization risk	Regulatory risk
S	Extremely reputable team with clear incentives to act in protocol best interest	Contracts controlled by DAO or 1st world government-regulated custodian	Extremely unlikely to have regulatory action enacted against asset/team
AA	Highly reputable team	DAO governance or highly reputable custodian	Highly unlikely to have regulatory action enacted
A	Very reputable team	DAO governance or protocol multi-sig w/ off-chain voting or great custodian	Very unlikely to have regulatory action enacted
BB	Very reputable team	Multi-sig governance with off-chain voting	Unlikely to have regulatory action enacted
B	Reputable team	Multi-sig governance without voting	Regulatory risk is present
C	The team can be vouched for	Single-signer governance	Regulatory risks present or pending

Market Risk

Market (M) risk is a quantitative assessment of the present liquidity and historical volatility of an asset. M risk of an asset is assessed by:

• The average 24-hour volume is a proxy for available liquidity across CEX&DEX

• The paired liquidity can inform the present liquidity of an asset on DEXes and the availability of an asset on reputable CEXs

• AMM liquidity growth and decay

• Historical price movement risk (a proxy for historical worst-case volatility) can be measured as the maximum price movement within an hour and four hours. An hourly sampling rate reflects an upper bound on time between oracle updates for a Beta market, where price volatility is relevant

• The oracle deviation threshold for which price is updated. Smaller implies the protocol has more accurate knowledge of an asset’s price

Tier	Avg. 24-hr volume	DEX AMM Liquidity	1-hour max % change	4-hour max % change	Oracle Dev. Threshold	CEX Listings
S	$1b+	$100m+	2.5%	5%	1%	Exchanges with $1b daily volume
AA	$100m+	$25m+	5%	10%	2%	Exchanges with $1b daily volume
A	$50m+	$10m+	10%	20%	3.5%	Exchanges with $100m daily volume
BB	$10m+	$5m+	20%	40%	***	Exchanges with $100m daily volume
B	$1m+	$1m+	40%	60%	***	Exchanges with $10m daily volume
C	< $1m	< $1m	> 40%	> 60%	***	***

The quantitative framework described serves as guidance to evaluating the riskiness of an asset. Based on these three risk factors and additional team evaluation, governance determines which of the six asset tiers (S, AA, A, BB, B, C) a money market is assigned and which LTV and Collateral Factors are appropriate. The risk tiers of money markets are able to be upgraded or downgraded.