Risk Tiers

Overview

RedCarpetHQ uses a three-tier risk assessment system (GREEN, YELLOW, RED) to evaluate campaign tokens and adjust DeFi parameters accordingly. Understanding risk tiers is crucial for both lenders and borrowers.

Risk Tier System

GREEN Tier (Low Risk)

Characteristics:

  • Recent price updates (< 24 hours)

  • Healthy trading volume

  • Low vault utilization (< 70%)

  • No wash trading detected

  • Stable price action

    • DeFi Parameters:

  • Collateral Factor: 75%

  • Max LTV: 75%

  • Lender Interest: 4%

  • Stability Pool: 6%

  • Safety Reserves: 90%

    • Best for:

  • Conservative borrowers

  • Maximum borrowing power

  • Lower interest costs

  • Stable collateral

    • YELLOW Tier (Medium Risk)

    Characteristics:

  • Moderate price staleness (24-72 hours)

  • Moderate trading volume

  • Medium vault utilization (70-85%)

  • Some volatility

  • Minor concerns

    • DeFi Parameters:

  • Collateral Factor: 60%

  • Max LTV: 60%

  • Lender Interest: 6%

  • Stability Pool: 9%

  • Safety Reserves: 85%

    • Best for:

  • Moderate risk tolerance

  • Balanced approach

  • Active monitoring

  • Medium-term positions

    • RED Tier (High Risk)

    Characteristics:

  • Stale prices (> 72 hours)

  • Low/no trading volume

  • High vault utilization (> 85%)

  • Wash trading suspected

  • High volatility or manipulation

    • DeFi Parameters:

  • Collateral Factor: 40%

  • Max LTV: 40%

  • Lender Interest: 10%

  • Stability Pool: 15%

  • Safety Reserves: 75%

    • Best for:

  • High risk tolerance

  • Short-term positions

  • Speculative plays

  • Close monitoring required

    • Risk Assessment Factors

    1. Price Staleness

    How it's measured:

  • Time since last trade

  • Update frequency

  • Market activity level

    • Impact:

  • Fresh (< 24h): Positive

  • Moderate (24-72h): Neutral

  • Stale (> 72h): Negative

  • Very stale (> 7d): High risk

    • 2. Vault Utilization

    Calculation:
    ``
    Utilization = Total Borrowed / Total Deposited × 100%
    `

    Thresholds:

  • Low (< 70%): GREEN

  • Medium (70-85%): YELLOW

  • High (> 85%): RED

    • Why it matters:

  • High utilization = liquidity risk

  • Potential for bank run

  • Liquidation cascade risk

  • Withdrawal limitations

    • 3. Wash Trading Detection

    Monitored patterns:

  • Same-address trading

  • Circular transactions

  • Suspicious timing

  • Volume manipulation

  • Coordinated activity

    • Consequences:

  • Automatic RED tier assignment

  • Reduced collateral factors

  • Contest disqualification

  • Potential account penalties

    • 4. Market Health

    Indicators:

  • Trading volume trends

  • Price volatility

  • Holder concentration

  • Liquidity depth

  • Order book balance

    • Assessment:

  • Healthy market: GREEN

  • Moderate concerns: YELLOW

  • Unhealthy market: RED

    • Impact on Users

    For Borrowers

    GREEN Tier Benefits:

  • Borrow up to 75% of collateral value

  • Lower liquidation risk

  • More borrowing headroom

  • Better capital efficiency

    • RED Tier Challenges:

  • Only 40% LTV available

  • Higher liquidation risk

  • Less borrowing power

  • Requires more collateral

    • Example:
    `
    Collateral: 1,000 tokens @ $2 = $2,000

    GREEN Tier:

  • Max borrow: $1,500 (75%)

  • Safe borrow: $1,000 (50%)

    • RED Tier:

  • Max borrow: $800 (40%)

  • Safe borrow: $400 (20%)

    • `

    For Lenders

    GREEN Tier:

  • Lower interest (4%)

  • Lower risk

  • More safety reserves

  • Stable returns

    • RED Tier:

  • Higher interest (10%)

  • Higher risk

  • Less safety reserves

  • Compensates for risk

    • Risk-Reward Tradeoff:

  • Higher returns come with higher risk

  • Diversification recommended

  • Monitor tier changes

  • Adjust exposure accordingly

    • For Traders

    Risk tier affects:

  • Token perception

  • Trading volume

  • Price volatility

  • Market liquidity

    • Considerations:

  • GREEN tier = more stable

  • RED tier = more volatile

  • Tier changes impact price

  • Monitor for opportunities

    • Tier Transitions

    Upgrading (RED → YELLOW → GREEN)

    Requirements:

  • Increase trading activity

  • Reduce vault utilization

  • Maintain stable prices

  • Eliminate suspicious activity

    • Timeline:

  • Continuous monitoring

  • Automatic upgrades

  • No manual intervention needed

  • Gradual improvement

    • Downgrading (GREEN → YELLOW → RED)

    Triggers:

  • Price becomes stale

  • Vault utilization spikes

  • Wash trading detected

  • Market health deteriorates

    • Timeline:

  • Immediate for wash trading

  • Gradual for other factors

  • Automatic downgrades

  • Notification to users

    • Monitoring Risk Tiers

    Check Current Tier

    On Platform:

  • Token page shows current tier

  • Color-coded indicators

  • Risk badge display

  • Historical tier data

    • On-Chain:

  • Query RiskOracle contract

  • View tier history

  • Check assessment factors

  • Verify calculations

    • Tier Change Notifications

    Alert Systems:

  • Email notifications (if enabled)

  • Platform notifications

  • On-chain events

    • What to do:

  • Review your positions

  • Adjust LTV if borrowing

  • Consider rebalancing

  • Monitor closely

    • Risk Tier Strategy

    For Conservative Users

    Preferences:

  • Stick to GREEN tier tokens

  • Avoid RED tier entirely

  • Monitor tier changes

  • Exit positions on downgrade

    • Portfolio:

  • 80%+ GREEN tier

  • 20% YELLOW tier

  • 0% RED tier

  • Regular rebalancing

    • For Aggressive Users

    Preferences:

  • Seek RED tier opportunities

  • Higher risk/reward

  • Active management

  • Quick position changes

    • Portfolio:

  • 40% GREEN tier

  • 30% YELLOW tier

  • 30% RED tier

  • Frequent trading

    • For Balanced Users

    Preferences:

  • Mix of all tiers

  • Risk-adjusted returns

  • Moderate monitoring

  • Diversified approach

    • Portfolio:

  • 50% GREEN tier

  • 30% YELLOW tier

  • 20% RED tier

  • Monthly rebalancing

    • Technical Implementation

    RiskOracle Contract

    `solidity
    // Simplified risk assessment
    contract RiskOracle {
    // Risk tiers defined as integers
    uint8 public constant TIER_GREEN = 0;
    uint8 public constant TIER_YELLOW = 1;
    uint8 public constant TIER_RED = 2;

    function getRiskTier(address token)
    external view returns (uint8) {
    // Check price staleness
    // Check vault utilization
    // Check wash trading
    // Check market health
    // Return tier (0, 1, or 2)
    }

    function getCollateralFactor(address token)
    external view returns (uint256) {
    uint8 tier = getRiskTier(token);
    if (tier == TIER_GREEN) return 75;
    if (tier == TIER_YELLOW) return 60;
    return 40; // RED
    }
    }
    ``

    Integration Points

    Connected contracts:

  • UnifiedVault (collateral factors)

  • HybridPriceOracle (price staleness)

  • Market (wash trading detection)

  • Contest (volume validation)

    • Best Practices

    For All Users

    ✅ Do:

  • Check risk tier before trading/lending/borrowing

  • Understand tier implications

  • Monitor tier changes

  • Adjust positions accordingly

  • Diversify across tiers

    • ❌ Don't:

  • Ignore risk tier warnings

  • Max out LTV on RED tier

  • Assume tiers are permanent

  • Panic on tier changes

  • Concentrate in single tier

    • Frequently Asked Questions

    Q: How often are risk tiers updated?
    A: Continuously. Tiers are reassessed with each relevant on-chain event.

    Q: Can a token jump from GREEN to RED instantly?
    A: Yes, if wash trading is detected or severe issues arise.

    Q: What happens to my loan if tier changes?
    A: Your existing loan terms don't change, but your max LTV adjusts. You may need to add collateral.

    Q: Can I see tier history?
    A: Yes, historical tier data is available on token pages and on-chain.

    Q: Who decides the risk tier?
    A: The RiskOracle smart contract automatically assesses tiers based on objective criteria.

    Q: Can producers manipulate their token's tier?
    A: They can try to improve it through legitimate trading activity, but manipulation is detected and penalized.

    Related Resources

  • Price Discovery & Oracle
  • Risk Management
  • Finance Overview
  • DeFi Architecture
  • Smart Contracts

    • Need Help?

    If you have questions about risk tiers, contact our support team at support@redcarpethq.org.