Risk Management

Introduction

JustLend DAO Protocol is a money market that enables loans via liquidity pools in the different currencies proposed across various markets. Suppliers receive derivative jTokens, representing the cryptocurrency supply.

The liquidity of the protocol is the availability of capital to meet different business scenarios. It is a key metric, as a lack of liquidity will block business.

At any point in time, utilization, which is the share of the total supply of coins that have been lent out by various markets, is an important indicator of the liquidity of the JustLend DAO Protocol.

In this section, we dive into JustLend DAO’s liquidity risk by analyzing the availability of JustLend DAO‘s assets. Then we look at the valuation of jTokens, illiquid assets often suffer from illiquidity discounts due to the difficulty to find counterparties. The utilization and jToken valuation help us assess the level of liquidity risk of the protocol. Once this risk is understood, we can put in place risk management techniques through the borrow interest rate model.

Risk Value Level

Risk value is an indicator of the health of the current portfolio. Collaterals will be liquidated when the risk value reaches 100.

Formula: Risk value = Total borrow ÷ Borrow limit x 100

Our recommendations for users at different levels of risk are as follows:

Range	Levels of risk	Recommendations
0-35	Low Risk	Healthy portfolio, eligible for loans.
35-60	Medium Risk	Healthy portfolio overall, eligible for extra loan, but with caution.
60-80	High Risk	Portfolio faces risk of liquidation, and you are advised to add collateral or pay off part of your loans.
80-100	Extremely High Risk	Collaterals are about to be liquidated, and you are advised to add collateral or pay off part of your loans.