• Crypto Prices
    • CoinDesk Market Index
    • TV & Videos
    • Newsletters
    • Podcasts
    • WhiteLayersIconConsensus Magazine
    • Learn
    • Bitcoin Calculator
    • Consensus
    • Webinars
    • Indices
    • About
    • Markets
    • Companies
    • Technology
    • Web3
    • Policy
    • Sponsored Content
    Upcoming event
    Consensus 2023 Nav BarConsensus Is Only 90 Days Away!
  • TV & Videos

    TV & Videos

    • First Mover
    • The Hash
    • All About Bitcoin
    • Money Reimagined
    • Community Crypto
    • Consensus 22 Videos
    • View all shows

    Watch On

    • Twitter

      Twitter

    • Facebook

      Facebook

  • Newsletters

    Sign up for our newsletters

    Learn More
    UncheckedCheckbox

    Crypto Markets Today

    What happened today in crypto markets – and why.

    UncheckedCheckbox

    Crypto Investing Course

    Be a smarter, safer investor in eight weeks.

    UncheckedCheckbox

    The Node

    The biggest crypto news and ideas of the day.

    UncheckedCheckbox

    First Mover

    The latest moves in crypto markets, in context.

    UncheckedCheckbox

    Money Reimagined

    The transformation of value in the digital age.

    UncheckedCheckbox

    Crypto Long & Short

    News and analysis for the professional investor.

    UncheckedCheckbox

    State of Crypto

    Probing the intersection of crypto and government.

    UncheckedCheckbox

    Valid Points

    How Ethereum's evolution impacts crypto markets.

    UncheckedCheckbox

    Crypto for Advisors

    What financial advisors need to know about crypto.

    By signing up, you will receive emails about CoinDesk products and you agree to ourterms & conditionsandprivacy policy.

  • Podcasts

    Podcasts

    • The Hash
    • Markets Daily
    • Money Reimagined
    • The Breakdown, With NLW
    • Carpe Consensus
Coindesk Logo
  • Consensus

    Consensus

    • Go to Consensus 2023 Site
    • Consensus 2022 Videos
    • Powered By Consensus Content
  • Indices

    Indices

    • Bitcoin Price Index (XBX)
    • Ether Price Index (ETX)
    • Basic Attention Token Price Index (BTX)
    • Bitcoin Cash Price Index (BCX)
    • Cardano Price Index (ADX)

  • Crypto Prices
  • CoinDesk Market Index

  • TV & Videos
  • Newsletters
  • Podcasts
  • WhiteLayersIconConsensus Magazine
  • Learn
  • Bitcoin Calculator
  • Consensus
  • Webinars
  • Indices
  • About

  • Markets
  • Companies
  • Technology
  • Web3
  • Policy

  • Sponsored ContentChevrone Right Icon

Upcoming event
Consensus 2023 Nav BarConsensus Is Only 90 Days Away!
  • Markets

    Markets

    • Bitcoin
    • Ether
    • Altcoins
    • Trading
    • First Mover
  • Companies

    Companies

    • FTX Downfall: Full Coverage
    • Celsius
    • NFTs
    • Terra
    • Business
  • Policy

    Policy

    • Regulation
    • Crypto
    • Sanctions
    • SEC
    • Law
  • Technology

    Technology

    • Blockchains
    • Ethereum
    • DeFi
    • Stablecoins
    • Hacks
  • Web3

    Web3

    • Yuga Labs
    • NFTs
    • Metaverse
    • Dao
    • Gaming
  • Learn

    Learn

    • NFTs
    • Bitcoin
    • Ethereum
    • Cryptocurrency
    • Investing

    Crash Courses

    • Bitcoin 101
    • DeFi 101
    • Ethereum 101
    • NFT 101
    • Price Data 101
  • Consensus Magazine

    Consensus Magazine

    • Crypto 2023
    • Most Influential
    • Tax Week
    • Trading Week
    • IDEAS Week

    Most Recent Issue

    CoinDesk - Unknown
  • Sponsored Content

    Sponsored Content

    • Gate.US
    • abra
    • Matrixport
    • SocialGood
    • Tron
Bitcoin
$23,130.43+1.50%
Ethereum
$1,590.95+2.36%
Binance Coin
$313.10+2.31%
XRP
$0.40825476+3.56%
Aptos
$17.17+3.67%
Binance USD
$0.99990919-0.06%
Cardano
$0.39106800+4.93%
Dogecoin
$0.09519469+10.00%
Polygon
$1.12+2.30%
Stellar
$0.09114300+1.68%
Solana
$24.14+1.91%
Crypto.com
$0.07911247-1.25%
Polkadot
$6.28+1.83%
Chainlink
$7.05+2.10%
Shiba Inu
$0.00001189+3.96%
Litecoin
$94.35+4.49%
Uniswap
$6.62+2.65%
Avalanche
$20.03-2.12%
Tron
$0.06228810+0.05%
Wrapped Bitcoin
$23,105.72+1.48%
Cosmos
$13.41+3.12%
Quant
$143.99+2.24%
Monero
$178.57+0.85%
Stepn
$0.55791420+3.94%
dYdX
$3.09+24.63%
Ethereum Classic
$21.82+2.67%
Internet Computer
$5.90+3.52%
Bitcoin Cash
$134.26+3.64%
ApeCoin
$5.95+1.82%
Load Network
$2.18+8.54%
NEAR Protocol
$2.35+1.83%
Filecoin
$5.33+6.53%
Curve DAO Token
$1.04+5.01%
Algorand
$0.24348979+1.32%
VeChain
$0.02329407+0.77%
Hedera
$0.06571893+2.76%
Decentraland
$0.74715526+3.65%
Fantom
$0.53980016+15.05%
Aave
$82.98+2.70%
Axie Infinity
$10.97+2.17%
Luna Classic
$0.00017203+4.27%
EOS
$1.07+2.50%
The Sandbox
$0.73218550+2.20%
Elrond
$43.14+2.44%
Flow
$1.03+5.35%
Theta
$1.03+1.91%
Tezos
$1.07+0.43%
Paxos Dollar
$0.97253505+0.08%
Bitcoin SV
$42.73+2.57%
NEO
$8.21+1.86%
The Graph
$0.08968804+2.67%
Synthetix
$2.33+4.60%
Mina
$0.87109233+13.41%
Chiliz
$0.13401678+1.61%
eCash
$0.00003602+5.45%
BitTorrent
$0.00000072+0.76%
PancakeSwap
$4.06+2.63%
Dash
$60.04+3.98%
Maker
$654.83+3.43%
IOTA
$0.22733376+2.31%
FTX Token
$1.92+0.42%
Zcash
$45.69+3.03%
Immutable X
$0.74782593+15.89%
Convex Finance
$5.94-1.05%
THORChain
$1.78+1.59%
Compound
$52.93+2.45%
PAX Gold
$1,904.13+0.57%
Optimism
$2.21+5.82%
Nexo
$0.81602265+1.54%
Enjin
$0.44549345+2.92%
Zilliqa
$0.02717655+1.96%
Terra 2.0/LUNA
$2.09+7.36%
Mask Network
$4.28+34.12%
Loopring
$0.33802015+8.62%
Ethereum Name Service
$16.09+3.12%
Gala
$0.05489852+3.57%
Basic Attention Token
$0.25465000+3.50%
Kava.io
$0.96517789+1.47%
Stacks
$0.27891001+2.86%
Celo
$0.72998831+3.20%
Ravencoin
$0.02845464+1.47%
Decred
$22.68+0.35%
NEM
$0.03679982+1.59%
Kusama
$35.56+5.13%
Sushiswap
$1.27+2.26%
Woo Network
$0.17953012+3.33%
Bitcoin Gold
$15.24-3.63%
Fetch.ai
$0.27662803+4.94%
Qtum
$2.72+0.58%
IoTeX
$0.02872993+3.48%
Audius
$0.27542889+2.77%
Oasis Network
$0.05367891+2.56%
Celsius
$0.63500609+0.21%
Band Protocol
$2.19+12.37%
Yearn Finance
$7,299.79+2.44%
Amp
$0.00461679+2.43%
Waves
$2.51+1.48%
Moonbeam
$0.44735057+2.84%
TerraUSD
$0.02495481+18.76%
Injective Protocol
$3.13+9.60%
UMA Protocol
$2.04+2.88%
Ribbon Finance
$0.22943035-6.36%
0x
$0.21839833+1.97%
Polymath Network
$0.21442628+0.26%
Ankr
$0.02589981+3.58%
NuCypher
$0.15443567+0.05%
OMG Network
$1.42+1.85%
MetisDAO
$36.65+7.79%
SafePal
$0.57578846+13.36%
ICON
$0.20602989+2.02%
Livepeer
$7.39+4.92%
DigiByte
$0.01050057+4.27%
Voyager Token
$0.56400543-13.19%
Siacoin
$0.00307818+1.82%
Wax
$0.06728004+1.46%
Cartesi
$0.14938471+4.43%
Secret
$0.76248412+1.60%
SXP
$0.28337513+1.49%
Skale
$0.03487405+2.28%
Lisk
$0.91852756+1.62%
Keep Network
$0.23433387+16.17%
Aragon
$3.20+5.42%
iExec RLC
$1.73+5.04%
Nervos Network
$0.00372994+1.86%
Smooth Love Potion
$0.00306309+2.17%
Nano
$0.85372787+4.62%
COTI
$0.09869968-0.05%
Spell Token
$0.00079204+0.56%
Syscoin
$0.16219440-2.21%
Civic
$0.10439053-1.93%
Numeraire
$16.43+1.03%
Chromia
$0.17306405+6.96%
Serum
$0.36800220+2.30%
Vulcan Forged PYR
$3.94+3.20%
MOBOX
$0.55381800+1.93%
WazirX
$0.19218686+1.32%
Ren
$0.08403702+2.60%
Request
$0.10814046+3.47%
XYO Network
$0.00651000+0.17%
Bancor
$0.42617438+3.13%
Steem
$0.19082857+0.77%
Joe
$0.21302429-0.38%
NKN
$0.10491086+4.95%
Alchemy Pay
$0.01346066+9.08%
Augur
$5.85+0.48%
Orchid
$0.09681346+1.16%
Yield Guild Games
$0.30737307+1.12%
Sun Token
$0.00595250+1.78%
Ampleforth Governance
$3.44+1.55%
Storj
$0.36383686+2.31%
Verge
$0.00310927+1.94%
Stormx
$0.00545820+1.16%
Moonriver
$8.48+1.14%
Polkastarter
$0.45606156+1.37%
Alpaca Finance
$0.29020353+6.38%
Index Chain
$0.05120845+4.32%
Enzyme
$23.61+1.80%
Raydium
$0.23178798+0.05%
CLV
$0.07172069+1.72%
Quickswap
$59.70+3.71%
Mirror Protocol
$0.16313150+3.89%
Harvest Finance
$37.13-0.72%
JasmyCoin
$0.00517924+1.59%
Samoyedcoin
$0.00423154-3.05%
Kyber Network
$0.79989826+7.50%
SuperRare
$0.14798230+2.77%
district0x
$0.02315082+1.27%
Quantstamp
$0.01418000+3.58%
Star Atlas DAO
$0.34588509+0.26%
SingularDTV
$0.000402100.00%
Tether
$1.00-0.06%
USD Coin
$0.99997070-0.06%
Dai
$0.99971787-0.05%
PlayIconNav
Crypto Prices CoinDesk Market Index

Sponsored Content

CoinDesk - Unknown

Risk Management in a Bear Market: A Multifaceted Approach

AccessTimeIconAug 25, 2022
Facebook iconLinkedin iconTwitter icon
CoinDesk - Unknown

CoinDesk Staff

Q.

Which risk management questions should institutions ask when they're selecting a partner, especially a partner from whom they're intending to earn yield or borrow against their digital asset holdings?

A.

Institutions looking to get into crypto and gain an understanding of yield and crypto lending must bifurcate the risk discussion to cover both [centralized financing] as well as [decentralized financing]..

In CeFi lending, there are several factors that an institution should consider. The first is overall credit risk management. At Abra we have a credit team that does a deep dive on all counterparties, including their use of funds, borrower financials and a whole array of other factors that determine their credit worthiness. The next step is the Investment Committee to determine whether a new counterparty is worthy of being considered for credit within the Abra lending system. Risk limits are subject to the approval of the Risk Committee. There's market risk where we consider the parameters of our business relative to changing market conditions. There's liquidity risk to consider; such that if you are taking collateral from a borrower in the form of bitcoin or ether, it is important that that collateral is highly liquid so that if the market goes against the borrower you can sell collateral when necessary without large slippage or a significant trading spread.

Duration risk gives an indication of the liquidity of the overall lending system. For example, if terms of service and contracts indicate that deposits are available for withdrawal in less than seven calendar days, but the lending book has a 30-day duration or a six-month duration there is a good chance that many depositors won’t be able to access their funds on time when desired. We keep conservative liquidity buffers and do not take cross asset risk. And the most important risk, which has been in the news a lot lately, is concentration risk, which is a fancy way of saying don't put all your eggs in one basket.

Q.

Is it the same set of risks for DeFi?

A.

In DeFi you have smart contract risk, so the question is whether your engineering team is reviewing code, doing code audits, or using third parties to audit smart contracts used by the DeFi protocol. We also look at other qualitative factors and signals, such as the total value locked into the contract and the vintage of the protocol. The more money that's locked in the contract, the more interesting the contract becomes to hackers. So the total value locked and the vintage of the protocol signal how battle-tested the protocol is. You also have governance risk, which asks if a group of people can get together and coordinate to force changes upon the protocol, including the token economics, and how that affects the overall decentralization of the system. The Solana blockchain has had some issues recently where a small group of actors was able to force changes on a huge percentage of the user base via the governance model they have in place.

Then there are the basics of economic risk, meaning what are the incentives? Are they paying out the incentives in their own token and is that done in a way that can be exploited? There are also operational risks to think about because DeFi is 24/7 and has no off switch. So how do you monitor things on Sunday morning at 2 a.m.? Then there's the trading risk if you're dealing with relatively illiquid tokens, where you have issues like impermanent loss, slippage and exit liquidity, all of which factor into determining how you should value potential DeFi investment opportunities. In all cases, we make sure to have contingency plans in place, including close-out strategies, channels and cost.

Q.

What are the main lessons that institutions, as well as individuals, should learn from the recent problems that have faced some other crypto lenders out there?

A.

Well, some of the problems were related to fraud. So, they should ask about the regulatory status of a company. Certain regulators are better suited to preventing the kind of fraud that we've seen in the markets. If a company tells you that they're doing something, are they really doing it? And the best way to do that is via the banking regulators. I think the banking regulators, ironically, are going to have a bigger and bigger role to play in the crypto lending markets over time.

That is ironic.

A.

Very much so. There are two ways to look at crypto. The first is, if you know what you're doing, either as an individual or an institution, you can leverage DeFi and key management to become your own bank. That's the promise of being able to hold your own keys. Then there is the vast majority of the investing public, both individuals and institutions, who are not in a position to leverage crypto to become their own bank, and therefore they have to rely on trusted third parties. Most individuals and institutions are not able to do proper key management, proper risk management, or 24/7 monitoring of DeFi protocols. They need to know that the parties that they're trusting to do this are operating under all the parameters that I've described above from both a risk management perspective, and a compliance and licensing perspective.


Read more about
Sponsored Content

Logo of BTCBTC$23,130.43
1.50%
Logo of ETHETH$1,590.95
2.36%
Logo of BNBBNB$313.10
2.31%
Logo of XRPXRP$0.40825476
3.56%
Logo of APTAPT$17.17
3.67%

View All Prices

Sign up for Money Reimagined, our weekly newsletter exploring the transformation of value in the digital age.
By signing up, you will receive emails about CoinDesk product updates, events and marketing and you agree to our terms of services and privacy policy.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

CoinDesk Staff


Logo of BTCBTC$23,130.43
1.50%
Logo of ETHETH$1,590.95
2.36%
Logo of BNBBNB$313.10
2.31%
Logo of XRPXRP$0.40825476
3.56%
Logo of APTAPT$17.17
3.67%

View All Prices
Coindesk Logo

About

AboutMastheadContributorsCareersCompany News

Stay Updated

ConsensusNewslettersFollow

Get In Touch

Contact UsAdvertiseAccessibility HelpSitemap

The Fine Print

Ethics PolicyPrivacyTerms Of UseDo Not Sell My Personal Information

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

©2022 CoinDesk

Twitter iconFacebook iconLinkedin iconRSS Logo
TikTokIcon