Maker Risk Rates

In the matrices, we retrieve a pair of values for the Maker risk rate:

  • The positive element (Yield Multiplier rate_(j, p) ) is used in calculating Makers’ share for positive yield. Each tier receives a share of the yield. The share for a higher tier is larger to compensate for the higher risk that is assumed by the associated multiplier for negative yields.

  • The negative element (Shortfall Multiplier rate_(j, n) ) is used in calculating Makers’ share for negative yield.

For Takers, both matrix dimensions have a clear impact on the protocol in terms of solvency risk, but for Makers, the impact of their Tier dimension is less obvious. A Maker’s Term influences the risk of protocol solvency in a similar way as it does for Takers; longer terms translate to longer USD liquidity stability (i.e. Maker’s debt liability is not payable until further into the future), and thus longer Terms resolve in more attractive multipliers. Maker shortfall multipliers however have two purposes: (i) they calculate (leveraged) losses by increasing that Maker’s share of losses (negative yields), and (ii) they are used to calculate the proportion of Capital Reserve utilisation in support of a deficit (negative yield).

The Tiers generally serve to segment Makers from one another through leverage, noting that a Maker’s actual leverage (and access to the Capital Reserve) in the live environment is derived from their relative risk rating to the selected values for all other Makers in the same market.

Last updated