Economic Model Assessment

Economic model assessment involves evaluating the tokenomics, incentive structures, and game-theoretic properties of a financial protocol to ensure long-term stability and resistance to manipulation. This process looks at how parameters such as interest rates, collateral requirements, and liquidation thresholds interact under various market conditions.

Auditors check for potential systemic risks, such as death spirals in algorithmic stablecoins or liquidity traps in decentralized exchanges. By modeling different scenarios, including extreme volatility or oracle failure, the assessment determines if the protocol can maintain its peg or solvency.

It focuses on aligning participant incentives with the overall health of the ecosystem to prevent adversarial exploitation. This dimension of auditing is critical for derivatives and lending platforms where financial logic is as important as the underlying code.