Collateral Assessment Framework

This Collateral Assessment Framework has been compiled for use by the Open Dollar DAO to aid the decision making process for proposing the addition of new collateral types to the protocol. 

The goal of a collateral assessment is to ensure that the collateral provides adequate security against the loan provided, minimizing the risk of loss to the lender while also ensuring fair and accessible lending conditions for the borrower. This process supports the overall health and trustworthiness of Open Dollar by mitigating the risks associated with collateral volatility and ensuring that loans are appropriately backed by stable and secure assets.

In this article, we’ll explore the primary categories for examination and how to perform the necessary due–diligence for proposing a new collateral token based on this framework.

Collateral Assessment Components

Collateral Assessments are comprised of three primary sections:

  • Protocol Fundamentals
  • Protocol Performance
  • Protocol Risks

Each section and sub-section should be populated in the Collateral Addition Proposal template with the most relevant data collected, links to the sources cited, and a brief statement summarizing the findings. It is strongly recommended that all data is collected directly from the protocol’s official website or documents for accuracy. Some sub-sections may not apply to non-LST collaterals.

Protocol Fundamentals

Protocol fundamentals cover key components of the product, revenue model, value proposition and architecture. The majority of this data can be found on the protocol’s official website or documents. 

Description of the Protocol

Underlying Collateral

Yield Accrual Mechanism

Provider Fee

Node Operator Set

Validator Selection

Governance Model

Protocol Performance

Protocol performance metrics are crucial to understanding the adoption of the product, its stability, and potential future in the market. These data points can be referenced on a variety of platforms, such as DeFiLlama, Dune, Coingecko, or other on-chain analytics platforms.

Usage Metrics


Transaction Volume

DEX Trading Volume

Average Transaction Size

Trading Volume to Market Capitalization Ratio

Active Addresses/Users

Integration with other Protocols

Protocol Staking Yield

Slashing Rate

Subsidization of Economic Activity

Existence of an Incentive Program

Size of the Incentive Program

Protocol Risks 

Understanding the multifaceted nature of collateral risk is crucial for DeFi platforms like Open Dollar. This section aims to unpack the various dimensions of collateral risk, which span three main categories:

  • Technological Risk: Risks associated with the failure or malfunction of technological components, including smart contract vulnerabilities, reliance on external data sources (oracles), and dependency on third-party platforms or protocols.
  • Counterparty Risk: Risks stemming from the potential failure of other parties involved in a transaction to meet their obligations. This includes concerns over the governance structures, centralization risks that may introduce points of failure or manipulation, validators, revenue, and the impact of regulatory changes on the operations of counterparties.
  • Market Risk: Risks arising from fluctuations in market prices and liquidity, which can impact the protocol as a result of adverse market conditions.

Links to any audits completed on the protocol and list of any significant sources of Technical, Counterparty, and Market risk to that asset should be documented and included in any collateral addition proposal. For a full list of what might be counted towards these types of risk or where they can be commonly referenced, see PrismaRisk’s collateral risk assessment on Lido wstETH.


Collateral assessments are critical to managing the complex risks associated with various types of collateral like LSTs. Following a structured approach ensures that stakeholder decisions regarding the acceptance of new collateral types are made with a clear, objective understanding of potential vulnerabilities.

Insights gained from these assessments enable informed strategic decision-making for the Open Dollar DAO. For instance, assets with higher risk profiles may warrant higher collateralization ratios if otherwise deemed acceptable based on their fundamentals and performance. 

As Open Dollar continues to grow, this framework will help to support the addition of new collateral types while minimizing risk to the OD stablecoins and protocol.

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