Market Risk

Market risk is a fundamental factor in determining an asset's risk. Market risk in K-Lend is encapsulated in one fundamental question: are liquidators able to profitably liquidate unhealthy loans when required?

For this to happen, liquidators must acquire and then provide the debt token, receive and then sell the collateral token back to their reserve token (typically a USD stablecoin). This process can occur via various mechanisms, such as flash loans or distinct token swap transactions.

With this liquidation process in mind, calibration of risk metrics requires consideration of two key aspects:

  1. Asset volatility

  2. Asset liquidity

Furthermore, this calibration needs to take into account the dynamic nature of markets (particularly cryptocurrency markets).

Consequently, each of the following metrics are analyzed using hourly price data over the short, medium and long term: