Risk Management & Disclosure

Risk Management

Dynamic Risk Assessment

Bondify evaluates assets through the risk clearing process before issuing CCR (Cleared Collateral Receipt), assessing four key dimensions that determine tranche parameters:

1. Liquidity Profile

• Market depth analysis measuring how much can be traded with minimal slippage

• Unstakability factors measuring both on-chain staking/unstaking speed and off-chain redemption capacity using time-weighted scale

• Liquidity scoring that provides LTV bonuses for highly liquid assets

• Combined liquidity factors that directly impact borrowing capacity through debt ceiling adjustments

2. Credit Quality

• Qualitative risk assessment based on issuer strength, operational history, and compliance track record

• Cash flow predictability: Focus on RWAs with stable, quantifiable yields, defined duration, predictable redemption terms, and measurable default rates

• Market capitalization evaluation reflecting institutional adoption and asset maturity

• Legal structure and asset backing verification ensuring regulatory compliance

• Track record analysis of issuer performance across market cycles

3. Market Dynamics

• Price volatility measurement using historical price movements to assess stability

• Correlation analysis with broader markets to understand systemic risk exposure

• Oracle reliability: 24/7 pricing requirements for DeFi vs daily/weekly RWA price updates

• Deviation monitoring that triggers parameter adjustments when asset characteristics change significantly

• Stress testing results under various market conditions to validate resilience

4. Technical Integration

• Oracle infrastructure reliability including price feed accuracy and update frequency

• Smart contract security assessment covering audit status and technical implementation

• Liquidation mechanism effectiveness ensuring positions can be safely unwound

• Cross-chain compatibility and bridge security for multi-chain assets

Real-Time Adjustments: LTV ratios, debt ceilings, and stability fees adjust dynamically based on these four dimensions, with governance oversight ensuring parameter changes maintain system stability while optimizing capital efficiency.

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Liquidation Protection

Tiered Response System

• Early Warnings: Automatic alerts and soft liquidations when approaching risk thresholds

• Market Liquidations: Standard liquidations for public positions with transparent execution

• Specialized Management: Protocol-managed unwinding for complex YT/Looper positions

Multi-Layer Backstops

Primary Protection—First-Loss Capital:

• Junior Tranche Buffer: Loopers provide 10-20% equity cushion absorbing initial losses before affecting SLF

• Position-level protection: Each leveraged position has dedicated first-loss capital

• YT fixed costs: Upfront payments reduce SLF capital at risk in YT strategies

Secondary Protection—Deep Liquidity:

• SLF USDC reserves: 20% recommended reserves for instant withdrawals and liquidation support

• CCR liquidity hub: Shared liquidity across multiple RWA assets eliminates isolated pool fragmentation

• Dynamic utilization: 80% target with upper band ensures capital available for liquidations

Tertiary Protection—Treasury Backstop: Final layer ensuring SLF depositors (Senior Tranche) face no principal losses

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Security Framework

Smart Contract Protection:

• Multi-firm security audits and formal verification

• Ongoing bug bounty programs and gradual deployment

• Multi-sig governance with emergency response capabilities

User Protection:

• Insurance coverage for liquidations events

• 24/7 automated monitoring systems

• Conservative scaling with proven asset classes

Risk Disclosure

Protocol Risks: Smart contract vulnerabilities, oracle failures, extreme market conditions, and regulatory changes

Asset Risks: RWA issuer defaults, price volatility, liquidity constraints, and technical integration issues

Mitigation: Diversified exposure, professional risk management, real-time parameter adjustments, and comprehensive insurance coverage ensure robust protection while maintaining transparency about inherent DeFi risks.