Primary Layer - General Token Modifiers

Methodologies General Token Modifiers
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Introduction

The Primary Layer is the final layer of the Credora Token Rating Framework, integrating outputs from the Sub-Methodology and Calibration Layers. It incorporates universal risk factors—such as Collateralization, Transparency, Governance, and Dependencies—that apply across all token structures. These General Token Modifiers refine token-specific risk assessments to produce the final Probability of Default (PD), Implied Rating, and Risk Score. By evaluating broader characteristics beyond foundational risks, this layer ensures a comprehensive and systematic assessment of a token’s overall risk profile.

Key Sections

Below is an overview of the core sections covered in the methodology document:

  1. Anchor PD Determination: Utilizes outputs from the two calibration layer methodologies.

    • Derivative Tokens Methodology
    • Stablecoin Methodology

  2. Modifiers: The General Token Modifiers refine the Anchor PD derived from previous methodology layers via modifiers that apply to all token types universally, ensuring a nuanced and tailored risk assessment.

    • Collateralization: Measures the extent to which a token is backed by underlying assets, analyzing its stability, with higher collateralization resulting in reduced risk.
    • Asset Transparency: Evaluates the degree of disclosure and validation of a token’s reserves, with notch adjustments based on traceability, audit, and proof of reserves.
    • Peg Track Record: Assesses the stability and reliability of an asset’s price relative to its underlying collateral. This factor comprises two key components:
      • Volatility of Pair Price: The variability in the relationship between the loan asset’s price and its underlying collateral.
      • Frequency of Significant Price Deviations: The frequency of significant price deviations relative to defined thresholds for stablecoins and non-stable assets.
    • Total Value Locked (TVL): Serves as a measure of protocol scale and market trust. Protocols are ranked and compared to their respective category’s median TVL.
    • Governance: Evaluates the structure and effectiveness of a protocol’s decision-making framework, focusing on:
      • Distribution of Voting Power: The number of wallets that control >50% of a protocol’s governance token.
      • Control Mechanisms: Assessment of the controls and governance mechanisms in place.
      • Dependencies: Adds risk adjustments for tokens backed by underlying assets that are not-in-kind.
    • Redemption: Evaluates the timeframe within which a token can be exchanged for its underlying asset without incurring material penalties.

  3. Framework Integration: This is the final layer of the Framework and outputs corresponding to the Final PD, Implied Rating and Risk Score of the respective tokens.

Access the Full Documentation

You can view the complete Primary Layer - General Token Modifiers on GitBook.

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