Systemic Risk Graphs

Systemic risk graphs are analytical models that map the interconnectedness of various financial protocols to visualize how shocks might propagate through the ecosystem. By treating protocols as nodes and their collateral dependencies as edges, researchers can identify central points of failure and areas of high contagion risk.

These graphs are indispensable for assessing the resilience of the DeFi market and understanding the ripple effects of individual protocol failures. In the context of derivatives, these models highlight how leverage and shared collateral link seemingly unrelated assets and platforms.

By quantifying the density and centrality of these connections, risk managers can proactively implement safeguards. These graphs serve as a diagnostic tool for monitoring the health of the entire digital asset financial infrastructure.