THORChain Risk Report (rev. July 7, 2023)
===
![](https://i.imgur.com/qajICcX.png)
[Introduction](/_Btk5G8-Tn27RJfbdgecyQ)
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[THORChain Lending Program Summary](/gQQbFIkiQy2WiHgo4cbU9A)
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[Loans as Synthetic Derivatives](/gedrnocFRxOWWgT8TXJ-sw)
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- [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)
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- [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)
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- [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)
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- [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)
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- [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)
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- [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)
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[Conclusion](/x1UimaQoQUOdVgDoUaEWJA)
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[Appendix](/WjX7Is8HTWmSuH059p5-zw)
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- [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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