The Ojo Network is developing DeFi's first Risk Engines: modular components designed to support lending for high TVL assets with lower volume. Think yield-bearing tokens, like Usual Money's USD0++, or LRTs on Mellow Finance.
Disclaimer:
This product provides or manipulates on-chain data feeds and is designed for decentralized environments. Risk Engines are a new development; using the Ojo Network's Risk Engines does not eliminate all risks associated with smart contracts, on-chain transactions, or price feeds. Many components of the network have undergone security testing and audits. However, smart contracts are still experimental technology, and vulnerabilities may exist. Use at your own risk. We recommend all users implement proper risk management strategies.
Ojo Risk Engines (Previously "Smart Oracles")
We have recently proposed to the Morpho DAO to build a Risk Engine to help make borrowing and lending Pendle PTs safer.Support us here!
A basic Risk Engine is composed of three key components: a primary feed, a secondary feed, and a decision maker. The Ojo Network packages these in a simple interface so that the top DeFi protocols can use them.
The Historacle was uniquely designed for low-volume governance tokens. This oracle type has more utility in exotic asset classes. The Historacle was designed to prevent Mango Market-style hacks on lending markets. Read the original design doc for the historacle here!
What is a Mango-Market Style Hack?
In the Mango Market Hack, a bad actor artificially inflated the price of $MNGO, the Mango Market DAO's governance token. The actor then took out a loan against the rest of his $MNGO tokens, now worth a ton, and drained the lending protcol of $110M+ in stables.
How do we prevent this?
The Historacle is composed of a Market Rate, the trailing Median Price of the Market Rate, and a "Less Than" decision-maker. The result is a less-reactive price feed, which limits how much users can collateralize.
In a simulated mango market hack, we see that the Historacle price feed stays low, and the market price slowly trails behind.
Oracle X
The goal of Oracle X is to prevent Bad Debt on lending markets when a yield-bearing token's exchange rate fails or is hacked. This is particularly helpful for stablecoins, where the market value of a stablecoin may trail behind the redemption value.
Oracle X is composed of three elements:
Theoretically, the result is a safer listing process for lending markets. In the example below, the Risk Engine detects a broken redemption rate for a yield-bearing token before the market can react.
