The pillars when combined determine the credit score, VaR, exit/rebalancing signals, and allocation caps.
Pillar 1: Credit
| Counterparty | Regulatory standing, operating history, AUM, audit quality, institutional recognition. |
|---|---|
| Collateral & LTV | Collateral type, collatarization, liquidation mechanism. |
| Diversification | Sector and factor concentration. |
| Ratings Equivalence | Formal or implied rating via comparable spreads, historical loss rates, or peer mapping. |
| Default History | Live or prior default events, expected recovery rate, resolution timeline, stress-cycle behaviour. |
Pillar 2: Liquidity
| Redemption Terms | Redemption frequency, notice period, and capacity cap per window. |
|---|---|
| Lock-Up & Gates | Hard lock-ups, soft discretionary gates, suspension clauses, withdrawal queues. |
| Underlying Liquidity | How quickly underlying assets can be realized to fund redemption under stress. |
| Secondary Market | DEX or OTC market depth, daily volume, bid/ask spread, price impact at size. |
| Stress Track Record | Whether redemptions were honored in full during prior market stress events. |
Pillar 3: Legal Structure
| Jurisdiction | Regulatory regime governing the vehicle. |
|---|---|
| Token Holder Claim | Direct beneficial ownership vs. contractual claim vs. smart contract balance — insolvency hierarchy. |
| Bankruptcy Remoteness | SPV/fund isolation from issuer insolvency; true-sale structure, independent trustee, legal opinion. |
| Documentation | OM, subscription agreement, legal opinions, audit. Gaps become enforcement gaps. |
| Enforcement Precedent | Whether this structure has been tested and enforced in a contested wind-down or default. |
Pillar 4: Accounting
| Fair Value Hierarchy | FASB ASC 820 / IFRS 13 level — from quoted market prices (L1) to management model (L3). |
|---|---|
| NAV Independence | Who calculates NAV — independent administrator under regulatory mandate vs. self-reported. |
| Pricing Frequency | How often NAV is struck and pushed on-chain; staleness window this creates. |
| Provisioning Method | IFRS 9 forward-looking ECL vs. incurred loss model that only provisions post-default. |
| Audit & Trail | Annual external audit, NAV certificates with professional liability, accessible records. |
Pillar 5: Oracle & Verification
| Attestation Independence | Who co-signs NAV before it is pushed — custodian co-attestation vs. operator self-push. |
|---|---|
| Transmission Security | Multi-sig controls, timelocks, deviation circuit breakers on the NAV push path. |
| Mechanical Verifiability | Whether token holders can independently reconstruct NAV from on-chain data alone. |
| Credit Observability | Availability of borrower health data, covenant compliance, and audited financials. |
| On-Chain Consumption | Whether the smart contract validates incoming NAV — deviation limits, smoothing, challenge windows. |
Pillar 1: Smart Contract Risk
| Audit Coverage | Scope and quality of audits relative to deployed code; outstanding critical/high severity findings. |
|---|---|
| Upgrade Mechanism | Proxy architecture, admin key configuration, timelock duration. |
| Admin Controls | Multisig threshold and signer independence; EOA admin on user funds is an automatic block. |
Pillar 2: Economic Risk
| Collateral Parameters | LTVs, liquidation thresholds, and incentive design — are liquidators profitable at realistic stress prices. |
|---|---|
| Utilisation Dynamics | Borrow rate behaviour at the kink; risk of liquidity lock at high utilisation. |
Pillar 3: Oracle Risk
| Feed Design | Spot vs. TWAP vs. aggregated; manipulation resistance; deviation limits and circuit breakers. |
|---|---|
| Update Frequency | Staleness windows relative to redemption or liquidation timelines. |
Pillar 4: Governance Risk