Introduction
According to Credora’s definition, a default occurs when a token fundamentally fails to meet core commitments to maintaining the necessary reserves or ensuring redemption. Understanding default definitions is critical for Reviewers, as their inputs include the assignment of a probability of default.
Credora default definitions are connected to the redemption mechanics of a token, including the Redemption Price. Redemption price refers to the predefined rate at which a token is expected to be exchanged for underlying assets directly via the issuing entity.
A state of default may be temporary, and in unclear cases, determination will be made utilizing input from Reviewers and the Credora Network community.
Key Sections
Below is an overview of the core sections covered in the methodology document:
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Redemption Failure: Occurs when eligible token holders cannot redeem tokens for a sustained period. This captures operational failures, technical issues, liquidity constraints or insolvency that prevents redemptions.
- Credora considers a 2-week Redemption Failure as a default.
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Reserve Insolvency: Occurs when the fair value of reserves declines 1% below the value of outstanding issuance, where outstanding issuance is the circulating token supply multiplied by the redemption price.
- Credora classifies Reserve Insolvency as a default, where it is sustained for 7 or more consecutive days.
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Stress Events: Deviations in price may result from general market volatility or concerns of stability.
- Credora defines these periods of excess volatility separately as Stress Events.
- Credora recognizes that stress events have a significant impact on DeFi users and is actively considering ways of categorising them and calculating their probability of occurrence.
Access the Full Documentation
You can view the complete documentation on GitBook.
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