Credit Enhancement

How Price Fluctuation and LLTV ratings combine into a Credit Enhancement score that can upgrade the base Asset Rating.

Credit Enhancement is a derived score in Steakhouse Financial's Market Rating layer that combines the Price Fluctuation and LLTV assessments. It acts as a safeguard for on-chain lending and investing activities against the credit risk of the underlying asset.

Together, the Price Fluctuation rating, adjusted by the bonus of the LLTV rating, forms the Credit Enhancement rating. This Credit Enhancement acts as a safeguard for on-chain lending and investing activities against the credit risk of the underlying asset.

If there is a high probability of losses on the underlying asset, but the on-chain mechanisms ensure that these losses are absorbed, the risk is mitigated.

Conversely, in the case of a crypto asset with no underlying credit risk, the probability of losses will come from an aggressive configuration of the market parameters, such as allowing a high LLTV for a highly volatile asset.