> ## Documentation Index
> Fetch the complete documentation index at: https://docs.rosetta.sh/llms.txt
> Use this file to discover all available pages before exploring further.

# Risk Scoring

> Deterministic risk scoring model and strategy classification

## 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](/circular/credit-ratings) page for details.