Methodologies

By publicizing and openly developing methodologies, Credora aims to foster industry collaboration and elevate market standards.

Credora plays a role in guiding the development of the methodologies and is committed to upholding the following best practices:

• Aim to establish consensus on methodology changes, considering a diverse range of views.
• Present analysis and evidence as required for community consideration.
• Guide the community towards measuring and prioritizing improvement in the performance of the outputs.

The documentation begins with the Token Rating Framework, which establishes foundational risk assessments for individual tokens—including derivative tokens (wrapped, liquid staking, and liquid restaking tokens) and various stablecoin types—by calculating a Probability of Default (PD) through anchor methodologies and risk modifiers.

Then framework then evaluates lending market constructs at increasing levels of complexity: isolated collateral markets (loan pairs) found in protocols like Morpho, which use Monte Carlo simulations to calculate Probability of Significant Loss (PSL) for single collateral-loan relationships; rehypothecated markets in unified lending pools like Aave and SparkLend, which employ two-step simulations to capture the recursive risk effects when collateral is reused across multiple positions; and finally vaults or aggregator pools, which function as managed portfolios deploying capital across multiple markets, incorporating curator expertise and governance quality into the risk assessment.