Risk Management Framework
DeFi protocols fail for predictable reasons: static parameters that can't adapt, governance that moves too slowly, and single points of failure that cascade into collapse. Astera's risk framework operates on a different principle—defense in depth: multiple independent layers of protection that function autonomously while maintaining manual override for black swan events.
This isn't theoretical. Every risk has been mapped, measured, and mitigated through mathematical control systems that respond in blocks, not board meetings.
Astera Lend Risk Management
See published research:
The following risk assessment explores risks associated with Astera Lend.
The scope of this assessment includes risks specific to Lend and does not include extant risks associated with DeFi operations such as Smart Contract Risks.
Risks extant in DeFi operations should be considered alongside this matrix prior to operations.
LENDING MARKETS
Business As Usual:
Liquidity risk (overutilization)
Borrower appetite causes extremely high utilization resulting in illiquidity for suppliers.
Aave interest rate strategy implements a kink in the curve that increases rates more aggressively beyond optimal utilization. Initial response and prolonged response are both static. Nothing can be done until conditions correct or Aave deploys a new interest rate strategy (governance).
Morpho interest rate strategy implements a kink in the curve similar to Aave. Prolonged response increases the slopes of the kinked curve, slowly increasing rates. The system’s response is fixed and doubles rates every 5 days.
Euler is modular and utilizes both interest rate strategies.
Astera’s interest rate strategies utilize control systems to implement a fundamental approach to interest rate management, scaling the system’s initial response (increasing rates) with the amount of overutilization, as well as scaling the system’s prolonged response (growing rates) with amount and time of overutilization.
Performance risk (underutilization)
Borrower appetite causes extremely low utilization resulting in diluted yield and undesirable spreads for suppliers.
Aave interest rate strategy is static. Nothing can be done until conditions improve or Aave deploys a new interest rate strategy (governance).
Morpho interest rate strategy halves rates every 5 days until utilization improves.
Euler is modular and utilizes both interest rate strategies.
Astera’s interest rate strategies utilize control systems to implement a fundamental approach to interest rate management, scaling the system’s initial response (decreasing rates) with the amount of underutilization, as well as scaling the system’s prolonged response (decaying rates) with amount and time of underutilization.
Consistency risk (optimal utilization)
Borrower appetite causes erratic interest rates at optimal utilization resulting in inconsistent yield for suppliers.
Contemporary interest rate strategies implement a kink in the curve around optimal utilization. This results in an erratic interest rate at optimal as the linear gradient changes aggressively.
Astera’s interest rate strategy implement a smooth curve for initial response. This results in a more steady interest rate at optimal utilization as the gradient changes smoothly.
In Case of Exploit:
Exposure risk
Exposure to unsecured collateral asset causes undesirable supplied asset utilization resulting in illiquidity and loss of funds.
Aave architecture allows for isolated instances, in which asset exposure is controlled. The consequence of this is fragmenting liquidity between instances where underperformance requires migration of liquidity, in particular when underperforming the lowest-risk rate.
Morpho and Euler architecture isolates markets further, allowing risk curators to specify their collateral and debt assets as well as weighted exposure. This fragments liquidity even further. For example, a user supplying USDC on Mainnet has 29 different deposit options (at time of writing).
Astera also offers isolated markets, known as Mini Pools. However, Astera offers an over-arching Core Pool, which consists solely of the highest-liquidity blue chip assets on the network. Astera allows users to deposit their funds into the Core Pool to always earn the lowest-risk rates, and then choose to internally rehypothecate their assets to Mini Pools to control their exposure and increase performance. Astera’s BAU risk mitigations continue to ensure funds remain accessible.
Permissionless risk
Permissionless nature of lending market causes undesirable borrowers to access supplied assets resulting in illiquidity or loss of funds.
Contemporary lending markets have debt caps, limiting the maximum borrowable amount in any given market. This limits the capital that can be accessed by a bad actor.
Astera offers debt caps, and introduces a borrower cool-down system that limits the rate at which a user can take on debt. Large borrowers can still scale into high-debt positions over time, while bad actors are no longer able to instantly borrow large sums to launder funds or exit stolen positions. The borrower cool-down system is customizable for each Mini Pool so can cater to the customers’ needs.
CDP STABLECOINS
Peg risk
Market activity causes peg deviation resulting in financial loss
Contemporary CDPs mitigate this with variable interest rates or 1:1 redemption mechanisms. Variable interest rates are typically coordinated by governance (DAI/USDS, GHO) and are inhibited by being excessively slow to respond. Redemption mechanisms are either extremely inefficient (assets sit idle) and/or result in bad user experience (user positions get redeemed in the case of Liquity).
Astera employs a novel control system architecture that responds to liquidity conditions before the price of the stablecoin deviates (think StableSwap reserve ratios) to autonomously vary the interest rate. There is no governance delay and there are no redemptions necessary. The system responds to the amplitude and duration of shifts in the LP ratio, front-running peg deviations to correct them faster.
Astera’s $asUSD Credit System
See published research:
The following risk assessment summarizes risks associated with Astera’s credit system issuing $asUSD loans.
The scope of this assessment includes risks specific to credit issuance (AMOs and beyond) and does not include overcollateralized credit risks (covered above) and extant risks associated with DeFi operations such as Smart Contract Risks.
Risks extant in DeFi operations should be considered alongside this matrix prior to operations.
Algorithmic Market Operations
Peg Stability Modules (Uni V3 one-tick LP)
Honeypot risk
LP tokens are removed and unbacked $asUSD credit is accessed causing excess $asUSD in circulation
PSMs will be issued limited amounts of $asUSD commensurate with counterparty appetite and commitments. PSM LP tokens will be owned and operated by a MultiSig, the specifics of which are to be made public.
Astera will issue limited $asUSD to PSM LPs and endeavour to scale out and burn unused $asUSD over time and as the Astera CDP feature launches and scales. Astera will maintain MSig details in their documentation as soon as reasonably practicable. Any movement of PSM LPs is to be justified and communicated publicly prior to onchain activity.
Liquidity AMOs (Launchpad)
Liquidity risk
Launching a token with an $asUSD credit line as the counterparty liquidity causes unbacked $asUSD to enter circulation at no cost, resulting in the sale of unbacked $asUSD with no recourse.
Any token launched against an $asUSD line of credit must have 100% of its circulating supply committed to the LP. The LP must be locked and not accessible to any EOA.
Should Astera offer a launchpad service, token creation will be controlled by audited Astera factory contracts that ensure 100% of token supply is paired with a line of credit and the LP is not accessible to EOAs.
Business-to-Function (B2F)
Supplying to a lending market
Liquidity risk (overutilization)
Borrower appetite causes extremely high utilization resulting in excess $asUSD in circulation
Supplying limited amounts of $asUSD ensures a limit to $asUSD that can enter circulation. Understanding interest rate dynamics ensures the cost of accessing unbacked $asUSD for long enough to cause contagion is unprofitable. A portion of yield generated by credit is reinvested in $asUSD, providing opportunities for users to remove $asUSD from circulation.
Astera will issue capped $asUSD lines of credit to Mini-Pools, ensuring that credit can be sized appropriately to the asset exposures in the pool and the yield expected. Astera’s interest rate strategies utilize control systems to implement a fundamental approach to interest rate management, scaling the system’s initial response (increasing rates) with the amount of overutilization, as well as scaling the system’s prolonged response (growing rates) with amount and time of overutilization.
Business-to-System (B2S)
Supplying to a pool-based perpetuals exchange
Counterparty risk
Traders winning causes unbacked $asUSD in circulation, resulting in inflated supply dynamics
Limiting the size of credit and scaling into the counterparty vault mitigates the amount of $asUSD that can enter circulation, and allows time for vault shares to overcollateralize. Understanding historical performance ensures the size of the loan reflects the highest expected drawdown, with a reasonable factor of safety. A portion of yield generated by credit is reinvested in $asUSD, providing opportunities for users to remove $asUSD from circulation.
Astera will issue scaled, fixed size loans to a perpetuals exchange counterparty vault only if the exchange can demonstrate historical vault performance and security. In partnership with the perpetuals exchange, Astera will insist that $asUSD be permitted as collateral for trading. It is expected that traders loading $asUSD for margin will remove significant supply from circulation, offsetting the risks associated with the loan. Loan issuance will consider the impacts on liquidity conditions should historical maximum drawdowns be experienced to ensure the network can handle any inflated supply. As the vault becomes profitable, a portion of revenue will be reinvested in $asUSD to create opportunities for market participants to remove $asUSD from circulation.
Business-to-Business (B2B)
Supplying to a fund/MM
Counterparty risk
Counterparty operations cause unbacked $asUSD to enter into circulation, causing inflated supply dynamics.
Limiting the size of credit issued to the counterparty mitigates the amount of $asUSD that can enter circulation. Understanding historical performance ensures the size of the loan reflects the highest expected drawdown, with a reasonable factor of safety. The counterparty’s intended strategies should be documented prior to loan issuance, and supported by a history of successful operations.
Astera will issue capped loans to counterparty business only if they can demonstrate historical performance and security. Loan issuance will consider the impacts on liquidity conditions should historical maximum drawdowns be experienced to ensure the network can handle any inflated supply. R/R should be documented prior to loan issuance, including but not limited to expected upside, Astera’s take, and/or any costs associated with the loan (fixed or variable interest).
The Bottom Line
Terra Luna had no risk framework—just faith in algorithms. Iron Finance had no isolation—contagion killed it instantly. Celsius had no transparency—hidden risks destroyed billions.
Astera has defense in depth: mathematical responses to market conditions, isolated experiments that can't poison the core, transparent operations that anyone can verify, and proven research backing every decision.
This isn't about avoiding risk—DeFi is built on calculated risks. This is about understanding, measuring, and managing risk better than anyone else.
When the next black swan arrives—and it will—Astera won't be hoping governance acts fast enough. The system will already be responding.
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