Collateral Quality Scoring

Collateral Quality Scoring is a quantitative assessment used to categorize assets based on their risk profile for lending. Factors such as market capitalization, trading volume, historical volatility, and smart contract security are analyzed.

This score dictates the collateral factor and liquidation threshold assigned to the asset. Higher quality assets, like major stablecoins or blue-chip assets, receive more favorable terms.

Lower quality or emerging assets are subject to stricter limits to protect the protocol. This scoring helps automate risk management by applying consistent rules to different asset classes.

It allows the protocol to support a diverse range of assets while maintaining a robust safety margin. As an asset's market profile changes, its score is updated to reflect its current risk.

It is a fundamental tool for scaling decentralized lending platforms safely.