Metrika, S&P Global Successfully Test Digital Asset Risk Framework

 

Introduction

As the financial landscape is changing rapidly, with the intersection of traditional finance with decentralized technologies, the need for standardized and robust risk assessment tools is increasing. Blockchain innovation has encumbered the financial environment with new asset classes, decentralized finance (DeFi) applications, cross-border digital transactions, etc. Yet, there is an added complexity layer to managing risk. With an understanding of this, Metrika (a leading blockchain operational intelligence platform) and S&P Global (a leading credit rating and financial analysis provider) have decided to come together to address paramount challenges in the digital asset market: lack of institutional-grade frameworks to assess blockchain network risk.

A New Epoch in Risk Evaluation for Digital Assets 

 Metrika and S&P Global worked together to develop and test the Digital Asset Risk Framework to assess the operational, technical, and financial risks of Layer 1 blockchains and decentralized protocols.   Stakeholders can now assess blockchain networks not only in terms of price volatility, but also based on network uptime, validator activity; governance structures; levels of decentralization; and consistency in transaction throughput. By embedding these nuanced dimensions of blockchain performance, the integrated framework provides a credible institutional perspective that has been largely overlooked in the crypto markets.

Why This Is Important Today

The market for cryptocurrencies have seen tremendous growth and now has a trillion-dollar market cap. This growth has occurred, however, with issues related to system reliability and concerns regarding vulnerabilities in smart contracts, protocol governance, and transparently assessing sustainable project performance.  The market has not seen many traditional financial institutions willing to completely embrace blockchain-based assets—not from a disinterest, but because there is no standard objective framework by which organizations Regulators are too have been looking for better ways to regulate and manage the systemic risk of the increasing presence of digital assets The Metrika–S&P Global framework provides a path forward.  

The Framework: Risk Dimensions

The framework separates risks as follows: 

o Latency, times for block production and responsiveness of nodes 

o Geographical dispersion and concentration risks

3. Governance and Protocol Risks o Upgrade mechanisms and governance transparency

o On-chain versus off-chain decision making vulnerabilities 

5. Tokenomics and Economic Health o Provide participant and validator incentives in alignment o Dynamics of available supply and staking behavior

The framework turns difficult technical signals into clear and actionable insights for non-technical decision-makers based on leveraging real-time on-chain telemetry from Metrika's monitoring infrastructure with financial modeling tools from S&P Global.

Reactions from the Industry and Future Directions

We received considerable feedback from a range of engaged industry actors. Well beyond the enthusiastic reaction my colleagues and I received, blockchain protocol teams, asset managers, risk officers, etc., all were excited to see a standardized format that could be applied to a number of different digital asset classes. Metrika intends to further develop its analytics around emerging DeFi protocols and Layer 2 scaling solutions.