Risk fundamentals
DeFi yields are attractive, but every extra percent of APY usually comes with some form of risk. At Troves, we don’t try to hide that; instead, we surface it as clearly as possible so you can decide whether a strategy fits your own risk–reward preferences.Behind the scenes, every strategy on Troves is scored across a set of core risk dimensions (like market risk, smart-contract risk, depeg risk, etc.). Each dimension gets a 0–5 rating, where 0 means effectively no risk on that dimension and 5 means very high risk. We then combine these into an overall view, but we also show you the breakdown so you can see what kind of risk you’re taking, not just “high” or “low”.
Built for people who read the risk section
Note: Risk labels and breakdowns are informational, not guarantees. Users should evaluate each vault’s specific risk sources, particularly market and impermanent loss exposure, and choose strategies aligned with their own risk tolerance.
Where can you see Risk in the Troves App?
You can explore this analysis directly in the product:
Open any vault’s detail page on Troves.
Scroll down and Click on the “Risk Analysis” section.
You’ll see each risk type we track, along with a rating from 0–5.
Interactive explanations: Hover over any risk item to see a tooltip explaining:
What that risk means, in plain English.
Why we gave that particular rating for this strategy.
The Risk Dimensions Troves Uses
We currently rate strategies across the following key risk types:
Market Risk
Impermanent Loss Risk
Liquidation Risk
Low Liquidity Risk
Smart Contract Risk
Oracle Risk
Technical Risk
Counterparty Risk
Depeg Risk
For each, we use a 0–5 scale. Below is what each risk means, and how we interpret the levels.
Market Risk
Market risk is the risk that the prices of the underlying assets move against your position. This is present in almost every crypto strategy: volatile assets can go up or down quickly, and leveraged or directional positions amplify that movement. How we rate it (0–5)
0 – No market risk: Exposure only to highly stable or risk-free–like assets, or fully hedged market-neutral structures.
1 – Very low market volatility: Mostly stable or blue-chip assets with historically low volatility, minimal directional exposure.
2 – Low market volatility: Exposure to relatively stable large-cap assets with moderate volatility.
3 – Moderate market volatility: Typical crypto exposure; meaningful price moves are common.
4 – High market volatility: Concentrated in more volatile assets or strategies that magnify price moves.
5 – Very high market volatility: Highly speculative assets, thin markets, or leveraged directional bets.
Impermanent Loss Risk
Impermanent loss (IL) is the risk LPs face in AMMs (e.g. Ekubo, Uniswap) when asset prices diverge from each other. Compared to simply holding both assets, you may end up with less value if prices move apart, especially in volatile or uncorrelated pairs and leveraged LP structures. How we rate it (0–5)?
0 – No impermanent loss risk: Single-sided staking or structures without price-divergent pairs.
1 – Highly correlated pairs: Pairs like xSTRK/STRK where tokens closely track each other; IL is minimal.
2 – Correlated pairs: Assets like BTC/SOL that often move in the same direction but not perfectly; IL is present but moderate.
3 – Non-correlated pairs: Pairs like STRK/USDC where one side is volatile vs. a stable asset; IL can be meaningful.
4 – Leveraged correlated pairs: Correlated assets with leverage layered on top, amplifying IL effects.
5 – Leveraged non-correlated pairs: Non-correlated pairs plus leverage—the highest IL profile in our system.
Liquidation Risk
Liquidation risk is the risk that your collateralized position gets liquidated if collateral value falls or debt grows relative to collateral. This is crucial for lending, borrowing, and leveraged strategies. How we rate it (0–5)?
0 – No liquidation risk: No borrowing, no leverage, or structures where liquidation simply does not occur.
1 – Very low probability: Very conservative collateralization, robust buffers, minimal volatility.
2 – Low probability: Safe but not extreme buffers; liquidation is possible but unlikely under normal conditions.
3 – Moderate probability: Typical DeFi leverage; liquidation can happen in significant market moves.
4 – High probability: Narrow safety margin; sharp but plausible moves can trigger liquidations.
5 – Critical probability: Very tight parameters or aggressive leverage; even moderate moves can cause liquidations.
Low Liquidity Risk
Low liquidity risk is the risk that you cannot enter or exit positions at fair prices or in meaningful size. Illiquid pools or low-depth markets can cause high slippage, delays, or inability to unwind. How we rate it (0–5)?
0 – High liquidity: Deep, active markets where even large trades can execute with low slippage.
1 – Good liquidity: Comfortable liquidity for most users; minor slippage for larger sizes.
2 – Adequate liquidity: Acceptable depth, but very large positions may notice slippage.
3 – Moderate concerns: Liquidity is limited; larger positions face notable slippage and execution risk.
4 – Low liquidity: Thin markets; even medium-sized trades can be painful to exit.
5 – Severe constraints: Very illiquid; exiting quickly or in size may be impractical or extremely costly.
Smart Contract Risk
Smart contract risk is the risk that the underlying contracts have bugs, vulnerabilities, or design flaws that can lead to loss of funds. Audit status, battle-testedness, and complexity all factor into this. How we rate it (0–5)?
0 – No smart contract risk: No smart contracts in the critical path (rare in DeFi), or effectively off-chain only exposure.
1 – Battle-tested contracts: Heavily used, long-lived contracts with strong track records and multiple audits.
2 – Well-audited contracts: Audited, widely used, and with no major incident history.
3 – Recently audited / some complexity: Newer or more complex contracts with audits, but less time in production.
4 – Unaudited / complex: Unaudited contracts or highly complex logic where failure modes are harder to reason about.
5 – Experimental / known vulnerabilities: Very experimental systems, or contracts with known issues or rapid, unproven changes.
Oracle Risk
Oracle risk is the risk that off-chain price or data feeds are wrong, manipulated, or unavailable. Any strategy that depends on external prices, rates, or indexes is exposed to oracle behavior. How we rate it (0–5)?
0 – No oracle dependency: Strategy doesn’t rely on external oracles for critical operations or valuations.
1 – Multiple reliable oracles: Redundant, battle-tested oracles (e.g., Chainlink and equivalents) with fallback mechanisms.
2 – Single reliable oracle: One strong provider with good security history but without redundancy.
3 – Less established oracle: Newer or less proven oracle providers, or non-standard configurations.
4 – Unproven oracle: Custom, lightly tested, or proprietary oracle setups.
5 – Unreliable or no oracle: No proper oracle, or historically unreliable feeds; highest risk of bad or missing data.
Technical Risk
Technical risk captures non-contract technical factors: infrastructure stability, protocol integrations, off-chain components, and complexity that could cause downtime or faulty behavior. How we rate it (0–5)?
0 – No technical risk: Minimal technical surface area beyond base chain, extremely straightforward setup.
1 – Stable infrastructure: Mature, well-tested infra and integrations; outages are rare.
2 – Established protocols: Uses established protocols and patterns with good operational history.
3 – Some complexity: Multiple moving parts or integrations where failures are possible.
4 – New implementation: Recently launched or significantly updated technical components.
5 – Experimental technology: Cutting-edge, unproven tech stacks where failure patterns aren’t yet well understood.
Counterparty Risk
Counterparty risk is the risk that another entity in the system (protocol, DAO, centralized party) fails to honor obligations—for example, due to mismanagement, bad debt, or governance exploits. How we rate it (0–5)?
0 – No counterparty risk: Fully trustless, non-custodial designs with no meaningful counterparty exposure.
1 – Fully decentralized: Decentralized protocols with robust governance and no single controlling party.
2 – Reputable counterparty: Well-known, established counterparties with a strong track record.
3 – Some exposure: Some reliance on a smaller, newer, or more concentrated counterparty.
4 – Significant risk: High reliance on a single or fragile counterparty, or concerning history.
5 – Bad debt / known issues: Documented bad debt, serious governance concerns, or repeated operational failures.
Depeg Risk
Depeg risk is the risk that a “pegged” asset (like a stablecoin) loses its peg to its reference asset (e.g., USD), either temporarily or permanently. This can be catastrophic for strategies that hold or lend such assets. How we rate it (0–5)?
0 – No depeg risk: No exposure to pegged assets, or exposure only in fully hedged ways.
1 – Highly stable: Major, battle-tested stablecoins or assets with extremely strong peg history.
2 – Generally stable: Assets with a good but not perfect record; minor, short-lived deviations are possible.
3 – Occasional depeg events: Documented historical depegs, but usually recovered.
4 – Frequent depeg risk: Repeated or large depeg events; confidence is limited.
5 – High depeg probability: High chance of severe or lasting depeg (e.g., stressed stablecoins or poorly collateralized pegs).
How to Use These Ratings as a Troves User
Match risk to your profile: A strategy might have low smart-contract risk but high market and liquidation risk, or vice versa. Focus on the dimensions that matter most to you.
Compare similar strategies: Within the same yield category, you can use our 0–5 levels per risk type to compare how risk is taken, not just how much APY you see.
Always read the tooltips: In the app, hover on each risk score in the Risk Analysis panel to see our reasoning for that specific vault.
Our goal at Troves is not to eliminate risk—that’s impossible in DeFi—but to make it visible, structured, and explainable, so you can make better, more informed decisions.
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