Ratings Scale

Rating Scale

We use a letter scale from AAA to D:

• AAA–BBB-: Investment Grade - Low risk of collateral loss

• BB+–B-: Speculative Grade - Clearly higher risk, still generally functioning

• CCC+–C: Distressed / Fragile - Very elevated risk, but not default

• D: Default - Loss event has occurred

The rating is derived from a numerical score based on the framework described below. We publish:

• The overall letter rating

• The pillar scores for Security, Strategy, and Operations

Probability-of-Loss Interpretation

Our DeFi rating expresses our view on the likelihood that a user will suffer permanent capital loss on deposited collateral over the next six months.

At this stage of the DeFi market, there is insufficient long-run default data to derive statistically robust probability-of-default (PD) curves for each rating band. Accordingly, our scale is:

• Ordinal (AAA indicates lower loss likelihood than AA, which is lower than A, etc.)

• Informed by structured expert judgement and comparative analysis across protocols

• Not yet calibrated to precise numerical PD estimates

As we collect more incident data over time, we will:

• Measure incident frequencies per rating band

• Adjust our thresholds and internal PD assumptions as needed

• Publish annual calibration reports describing how observed outcomes compare to our rating expectations.

Until then, ratings should be interpreted as relative indicators of loss likelihood, not as exact probabilities.

Review Frequency and Real-Time Triggers

• Full reassessment of each protocol at least every 12 months

• Continuous monitoring of selected real-time metrics (e.g., major depegs, contract pauses, slashing events, large withdrawals, governance changes, negative rate updates)

Significant events can trigger a rating invalid until it’s reassessed fully:

• A major protocol upgrade outside the normal schedule

• A major operational change, like a new manager, etc.

This acknowledges that DeFi is highly dynamic and that a static, point-in-time rating is not sufficient.

Recency

Each rating reflects our current assessment of permanent capital-loss risk. We perform a full reassessment every 12 months to incorporate structural and macro changes. Because conditions in DeFi can shift quickly, we continuously monitor key quantitative metrics and may update a rating at any time if material risks change.

Note: Not all risk factors can be monitored continuously. A rating is most accurate when recent and should be interpreted with increasing caution as it ages.