THORChain Risk Report (rev. July 7, 2023) === ![](https://i.imgur.com/qajICcX.png) [Introduction](/_Btk5G8-Tn27RJfbdgecyQ) --- [THORChain Lending Program Summary](/gQQbFIkiQy2WiHgo4cbU9A) --- [Loans as Synthetic Derivatives](/gedrnocFRxOWWgT8TXJ-sw) --- - [Assumptions](/gedrnocFRxOWWgT8TXJ-sw#Assumptions) - [The Starting State](/gedrnocFRxOWWgT8TXJ-sw#The-Starting-State) - [A Buy and Hold Strategy](/gedrnocFRxOWWgT8TXJ-sw#A-Buy-and-Hold-Strategy) - [Lending as an American Call Option](/gedrnocFRxOWWgT8TXJ-sw#Lending-as-an-American-Call-Option) - [Comparison of Different Collateralization Ratios](/gedrnocFRxOWWgT8TXJ-sw#Comparison-of-Different-Collateralization-Ratios) [Failure States](/FpdB2Ap2Sdm2g5eX2VNrSg) --- - [State [F1]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F1]) - [State [F2]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F2]) - [State [F3]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F3]) - [State [F4]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F4]) - [State [F5]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F5]) - [State [F6]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F6]) - [State [F7]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F7]) - [State [F8]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F8]) - [State [F9]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F9]) - [State [F10]](/FpdB2Ap2Sdm2g5eX2VNrSg#State-[F10]) [Risks](/TjH7cuoNQTy6I91wpgP1Dw) --- - [Risk [R1]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R1]) - [Risk [R2]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R2]) - [Risk [R3]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R3]) - [Risk [R4]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R4]) - [Risk [R5]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R5]) - [Risk [R6]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R6]) - [Risk [R7]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R7]) - [Risk [R8]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R8]) - [Risk [R9]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R9]) - [Risk [R10]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R10]) - [Risk [R11]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R11]) - [Risk [R12]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R12]) - [Risk [R13]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R13]) - [Risk [R14]](/TjH7cuoNQTy6I91wpgP1Dw#Risk-[R14]) [Mitigations](/vwcbqcr5Roa9WBxdw9T0Uw) --- - [Slip-based Fees](/vwcbqcr5Roa9WBxdw9T0Uw#Slip-based-Fees) - [Lending Parameters and Derived Asset Depth] (/vwcbqcr5Roa9WBxdw9T0Uw#Lending-Parameters-and-Derived-Asset-Depth)) - [Dynamic Collateralization Ratio](https://hackmd.io/vwcbqcr5Roa9WBxdw9T0Uw#Dynamic-Collateralization-Ratio) - [The Circuit Breaker and the Protocol Reserve](https://hackmd.io/vwcbqcr5Roa9WBxdw9T0Uw#The-Circuit-Breaker-and-the-Protocol-Reserve) - [Under Discussion: Demand Boundaries](/vwcbqcr5Roa9WBxdw9T0Uw#Under-Discussion-Demand-Boundaries) [Analysis of Largest Risks](/VUpgsipuRcOVaf66lX833w) --- - [Option Risk](/VUpgsipuRcOVaf66lX833w#Option-Risk) - [Volatility](/VUpgsipuRcOVaf66lX833w#Volatility) - [Time](/VUpgsipuRcOVaf66lX833w#Time) - [Measurement of Risk](/VUpgsipuRcOVaf66lX833w#Measurement-of-Risk) - [RUNE Inflation](/VUpgsipuRcOVaf66lX833w#RUNE-Inflation) - [Price Movements](/VUpgsipuRcOVaf66lX833w#Price-Movements) - [Liquidity/Rehypothecation Risk](/VUpgsipuRcOVaf66lX833w#LiquidityRehypothecation-Risk) - [Wrong-Way Risk](/VUpgsipuRcOVaf66lX833w#Wrong-Way-Risk) - [Competing Claims on Reserve / Reserve Draining](/VUpgsipuRcOVaf66lX833w#Competing-Claims-on-Reserve--Reserve-Draining) - [Sustainability of Node Operators](/VUpgsipuRcOVaf66lX833w#Sustainability-of-Node-Operators) - [Price Impacts](/VUpgsipuRcOVaf66lX833w#Price-Impacts) - [Reserve Risk](/VUpgsipuRcOVaf66lX833w#Reserve-Risk) - [General Uncertainty (and its Resolution)](/VUpgsipuRcOVaf66lX833w#General-Uncertainty-and-its-Resolution) - [TOR Price Manipulation](/VUpgsipuRcOVaf66lX833w#TOR-Price-Manipulation) - [Implementation and Timing of the Collateral Cap](/VUpgsipuRcOVaf66lX833w?view#Implementation-and-Timing-of-the-Collateral-Cap) [Parameter Recommendations](/-90aIiaYR1agDP1e0KCZag) --- - [The Lending Lever](/-90aIiaYR1agDP1e0KCZag#The-Lending-Lever) - [Inflation Risk and the Lending Lever](/-90aIiaYR1agDP1e0KCZag?view#Inflation-Risk-and-the-Lending-Lever) - [Lending Lever Recommendation](/-90aIiaYR1agDP1e0KCZag?view#Lending-Lever-Recommendation) - [The CR Range](/-90aIiaYR1agDP1e0KCZag#The-CR-Range) - [CR Range Recommendation](https://hackmd.io/-90aIiaYR1agDP1e0KCZag?view#CR-Range-Recommendation) - [The Derived Asset Pool Depth Parameters](/-90aIiaYR1agDP1e0KCZag?view#The-Derived-Asset-Pool-Depth-Parameters) - [Fitting A Kernel Density Estimate (KDE)](/-90aIiaYR1agDP1e0KCZag?view#Fitting-A-Kernel-Density-Estimate-KDE) - [Deriving the Inverse Cumulative Distribution Function (CDF)](/-90aIiaYR1agDP1e0KCZag?view#Deriving-the-Inverse-Cumulative-Distribution-Function-CDF) - [Assessing the Probability of a Minimum Derived Asset Depth](/-90aIiaYR1agDP1e0KCZag?view#Assessing-the-Probability-of-a-Minimum-Derived-Asset-Depth) - [A “Mini-Sweep” Exercise](/-90aIiaYR1agDP1e0KCZag?view#A-“Mini-Sweep”-Exercise) - [Derived Pool Depth Parameter Recommendations](/-90aIiaYR1agDP1e0KCZag?view#Derived-Pool-Depth-Parameter-Recommendations) [Simulation Results 7/31/2023](/R_ksPSG0T6mtjsEE7U9q-w) --- [Conclusion](/x1UimaQoQUOdVgDoUaEWJA) --- [Appendix](/WjX7Is8HTWmSuH059p5-zw) --- - [Risk Visualization](/WjX7Is8HTWmSuH059p5-zw#Risk-Visualization) - [Leveraged Looping (Option Risk)](/WjX7Is8HTWmSuH059p5-zw#Leveraged-Looping-Option-Risk) - [Impact of Pool RUNE Depth on Available Lending](/WjX7Is8HTWmSuH059p5-zw?view#Impact-of-Pool-RUNE-Depth-on-Available-Lending)
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