devnetRisk Framework
PercoSec's risk model evaluates each perpetual market on four quantitative dimensions. Scores determine capital requirements, premium rates, and insolvency thresholds.
The composite risk score is computed as a weighted linear combination of four market-specific indicators. Each factor is normalized to a 0–1 scale before aggregation. The score updates on each epoch (every 15 minutes by default).
Score range: 0.00 (lowest risk) to 1.00 (extreme risk). Scores above 0.75 trigger automatic market restriction.
Weighted average leverage across all open positions in the market. Higher leverage multiplies both gains and losses, increasing the probability of rapid position degradation and liquidation cascades.
Measured as the volume-weighted mean leverage ratio. A market where 60% of open interest carries 20x leverage scores significantly higher than one averaging 5x.
Unit: Ratio (1x–100x normalized to 0–1)
The ratio of total open interest to available on-book liquidity depth. A high ratio means that closing large positions will cause significant market impact, increasing liquidation deficit risk.
Liquidity depth is measured as the sum of bid and ask liquidity within 2% of the oracle price. Ratios above 0.7 are flagged as high concentration risk.
Unit: Dimensionless ratio (0–1+)
30-day realized volatility of the underlying asset, computed from on-chain oracle price feeds. High volatility increases the probability that price moves will outpace liquidation engine response time.
Calculated as annualized standard deviation of log returns over the trailing 30 days, sampled at 15-minute intervals from the protocol's oracle source.
Unit: Annualized % (normalized to 0–1 above 200% threshold)
Variance in the 8-hour funding rate over the trailing 30 days. High variance indicates sustained directional imbalance or speculative positioning, both of which increase systemic stress probability.
Computed as the population variance of the funding rate time series. Markets with persistent positive or negative funding rates score higher than balanced markets.
Unit: Basis points² (normalized)
Risk scores are mapped to four operational grades. Each grade carries specific reserve requirements, premium multipliers, and operational restrictions.
A market enters insolvency state when the realized deficit from a liquidation event exceeds the market-specific insolvency threshold parameter set at deployment.
The minimum reserve ratio is the fraction of total open interest that must be maintained in the insurance pool at all times. The ratio scales with the market's current risk score.
Pool utilization determines available coverage capacity and dynamically adjusts premium rates to attract more capital when utilization is high. The model prevents over-leveraging the insurance pool relative to its capitalization.
Normal operation. Premium multiplier: 1.0x. New deposits and withdrawals unrestricted.
Elevated utilization. Premium multiplier increases to 1.25x. Withdrawal requests queued to next epoch.
High utilization. Premium multiplier: 1.75x. New coverage issuance paused for high-risk markets.
Critical utilization. Premium multiplier: 3.0x. All new coverage paused. Insolvency handler on standby.
The following scenarios define the design envelope for the protocol's capital adequacy model. Pool reserve requirements are calibrated to withstand each scenario independently.
Trigger
Asset price drops 30% in under 60 seconds
Market Impact
Simultaneous liquidations across all long positions
Pool Response
Liquidation penalties recouped; deficit absorbed up to pool cap
Expected Outcome
Covered if deficit < 15% of pool TVL
Trigger
Keeper network goes offline for >5 minutes during extreme volatility
Market Impact
Positions cross maintenance margin with no executor
Pool Response
Deficit accumulates; handler program activates on-chain fallback
Expected Outcome
Covered up to reserve ratio; socialized above cap
Trigger
Multiple BTC/ETH perp markets breach insolvency simultaneously
Market Impact
Cross-market bad debt exceeds single-pool reserves
Pool Response
Per-market pools pay independently; no cross-contamination
Expected Outcome
Isolated per market; Phase 2 cross-pool reinsurance addresses at scale
Trigger
Directional market bias persists for >14 days
Market Impact
Funding payments drain minority side; potential de-listing pressure
Pool Response
Premium rates automatically escalate with funding variance score
Expected Outcome
Incentive mechanism corrects imbalance before insolvency threshold