# Collateral Standards

Steakhouse Financial underwrites every collateral asset through a Multi-Layer Risk Rating before it can be used in a vault. The model combines issuer risk, platform risk, and market risk into a single Final Market Rating that determines vault eligibility and quantitative exposure limits.

The **Multi-Layer Risk Rating** consists of combining the different sources of risk associated with an investment position into a single rating: the [**Final Market Rating**](https://steakhouse.financial/docs/risk-management/collateral/final-market-rating). This rating determines the vault eligibility and quantitative limits in managing investment exposure.

<figure><picture><source srcset="https://2662664176-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FkutwHNo7H236lMOzCyJa%2Fuploads%2F2FejR82kHHo2lsAEDKxC%2FMLRR-dark.svg?alt=media&#x26;token=59aa5051-cd77-48ea-83cb-c973a808a227" media="(prefers-color-scheme: dark)"><img src="https://2662664176-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FkutwHNo7H236lMOzCyJa%2Fuploads%2FvGZFketxcdVqCSZ3xzia%2FMLRR.svg?alt=media&#x26;token=68c17507-9eb6-4efd-810c-65470562e197" alt="Multi-Layer Risk Rating Framework triages a wide collateral selection funnel through assessments of issuer risk, market risk and platform risk before rating an exposure, which drives eligibility into different grades of vault"></picture><figcaption><p>Multi-Layer Risk Rating Framework triages a wide collateral selection funnel through assessments of issuer risk, market risk and platform risk before rating an exposure, which drives eligibility into different grades of vault</p></figcaption></figure>

An investment position can take various forms, such as:

* holding a crypto *asset* to benefit from its economic value appreciation
* holding a Pendle or Spectra *Principal Token (PT)* to secure yield over a defined time horizon
* providing liquidity in a *Liquidity Pool* to earn swap fees
* taking a position in a Morpho *Market* to generate interests from a lending pool.

These positions can also be combined. For example, the *PT-sUSDS/USDC* pair represents a Morpho lending market for USDC against the sUSDS Principal Token as collateral issued on the Pendle platform.

Therefore, we’ve constructed a Multi-Layer analysis with three intermediate independent rating based on the following **layers**:

* **Asset Rating** assesses the quality of the collateral and the role of stakeholders in managing the underlying asset. It evaluates the risk of default by the issuer, as well as potential losses stemming from technological vulnerabilities or poor governance.
* **Platform Rating** focuses on the resilience of an additional DeFi protocol layer. The platform is the application that transforms the native token into a new one with a different economic purpose. It includes an analysis of the platform’s credibility as an issuer and the risks associated with its technological implementation.
* **Market Rating** examines the risk parameters configured on the DeFi lending markets. It evaluates the oracle mechanism, the structure and correlation of trading pairs, liquidity depth, and credit enhancements (measures that mitigate the risk of asset loss or bad debt).