Risk Scoring

Risk Score

Every lending market receives a deterministic risk score from 0 to 100. The score is computed from observable on-chain metrics and protocol characteristics. Same inputs always produce the same score. Lower scores indicate lower risk; higher scores indicate higher risk.

Factors

The risk score incorporates multiple factors, each capturing a different dimension of market risk.

Factor	What It Captures
Protocol maturity	Track record and battle-testing of the lending protocol
TVL depth	Market size and available liquidity
Utilization	Ratio of borrowed to supplied assets — higher utilization means less exit liquidity
Concentration	How concentrated deposits are among a small number of wallets
Collateral type	Inherent risk characteristics of the collateral asset (volatility, liquidity, depeg history)
Chain risk	Security and maturity of the underlying blockchain

These factors are combined into a single composite score. The relative importance of each factor is calibrated to reflect real-world risk dynamics.

Utilization Regimes

Utilization is the single most important real-time risk indicator. Markets behave differently at different utilization levels.

Regime	Utilization	Implication
Healthy	Below 70%	Normal operation. Interest rates follow predictable models. Ample exit liquidity.
Elevated	70% – 85%	Rates climbing. Borrow demand is strong. Exit liquidity thinning.
Critical	85% – 93%	Withdrawal risk increasing. Rate spikes likely. Suppliers should monitor closely.
Emergency	Above 93%	Withdrawals may fail or be delayed. Severe rate spikes. Protocol intervention likely.

Strategy Classification

Circular classifies lending markets by their yield strategy. Each strategy carries a distinct risk profile.

Strategy	Description	Risk Profile
stable-yield	Standard lending of stablecoins (USDC, USDT, DAI)	Lowest risk. Returns driven by borrow demand.
lst-delta	Lending against liquid staking tokens (wstETH, rETH, cbETH)	Low-moderate. Risk comes from LST depeg scenarios.
recursive	Looped leverage strategies where collateral and loan are correlated	Moderate-high. Leverage amplifies both returns and liquidation risk.
governance	Lending against governance or utility tokens	Higher risk. Collateral volatility is significant.

Relationship to Credit Ratings

Risk scores are one input to the broader credit rating system. Specifically, they feed into the Market Risk dimension of Circular’s AAA-D credit ratings. Credit ratings additionally incorporate collateral quality, oracle reliability, and concentration risk for a more complete assessment. See the Credit Ratings page for details.

Rosetta

Yield Router

Markets & Yields

Risk Intelligence

Reference

Risk Score

Factors

Utilization Regimes

Strategy Classification

Relationship to Credit Ratings

​Risk Score

​Factors

​Utilization Regimes

​Strategy Classification

​Relationship to Credit Ratings

Risk Score

Factors

Utilization Regimes

Strategy Classification

Relationship to Credit Ratings