Risk Score
The Risk Score is a core concept in RAX Protocol.
It provides a normalized view of relative risk across assets, protocols, strategies, and portfolios, allowing users to reason about exposure and capital allocation using a consistent reference point.
What the Risk Score Represents
The RAX Risk Score is a normalized value ranging from 0 to 100.
Lower values indicate lower relative risk
Higher values indicate higher relative risk
The score is designed to be comparative, not absolute. It reflects how risky an asset, protocol, or portfolio is relative to others under current market conditions.
A low score does not imply the absence of risk.
A high score does not imply inevitable failure.
Why a Normalized Score Is Necessary
DeFi risk is multi-dimensional.
It is influenced by factors such as volatility, liquidity depth, protocol design, leverage, and cross-chain dependencies. Comparing these factors directly using raw metrics such as APY or TVL often leads to misleading conclusions.
The Risk Score exists to:
Aggregate heterogeneous risk signals into a single reference value
Enable comparison across different assets and strategies
Support decision-making under constraints
Provide a shared language for risk across the system
How the Risk Score Is Used
The Risk Score appears throughout the RAX system and is used in different contexts:
Global Risk Score to describe overall market conditions
Portfolio Risk Score to summarize aggregate portfolio risk
Protocol and vault risk scores to compare relative safety
Allocation Engine inputs to constrain and guide capital allocation
Alert thresholds to detect rising or abnormal risk
In all cases, the score is intended to be interpreted alongside supporting metrics, not in isolation.
Factors Contributing to the Risk Score
The Risk Score is derived from multiple categories of signals, including:
Price and yield volatility
Liquidity depth and liquidity dynamics
Concentration and exposure to specific protocols or chains
Historical behavior during stress events
Correlation with broader market risk
Detected anomalies and instability patterns
These signals are processed and normalized to produce a relative risk assessment under current conditions.
Risk Score and Model Confidence
Each Risk Score is accompanied by a Model Confidence indicator.
Model Confidence reflects how reliable the assessment is based on:
Data completeness and freshness
Agreement between internal models
Coverage of relevant scenarios
A high confidence score indicates that the system has sufficient information to support the assessment. A lower confidence score suggests increased uncertainty and should be interpreted conservatively.
Interpreting Risk Score Changes
Risk Scores are dynamic and may change over time.
Common reasons for score changes include:
Increases in volatility
Liquidity inflows or outflows
Shifts in market correlation
Detection of anomalous behavior
Changes in exposure composition
A rising Risk Score indicates increasing relative risk.
A falling Risk Score indicates improving relative conditions.
Trends are often more informative than single-point values.
What the Risk Score Does Not Do
The Risk Score does not:
Predict future prices
Guarantee safety or returns
Replace detailed analysis
Eliminate the need for human judgment
It is a decision-support signal, not an autonomous decision-maker.
Using the Risk Score Effectively
To use the Risk Score effectively:
Compare scores across similar assets or strategies
Monitor changes over time rather than single values
Combine the score with exposure analysis and simulations
Apply explicit constraints when allocating capital
Treat low-confidence assessments with caution
Summary
The Risk Score is a unifying abstraction that allows RAX users to reason about risk in a complex and rapidly evolving DeFi environment.
It transforms fragmented signals into a consistent reference, enabling more disciplined monitoring, analysis, and allocation of capital.
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