Protocol Risk

The protocol risk within the Ringo decentralized protocol is assessed by evaluating two main components: the unreliability score (U) and the security score (S). The overall protocol risk score (Rp) is calculated using a sigmoid function, which normalizes these scores to produce a comprehensive risk score. The formula for this calculation is:

Rp=11+e−(U+S)Rp=1+e−(U+S)1​

Components of the Protocol Risk

1. Unreliability Score (U)

The unreliability score (U) measures the operational health of the protocol and considers various factors, such as:

• Daily Downtime (D): This is the ratio of minutes offline in the last 24 hours to the total minutes in a day (1440).

• Error Rates (E): This metric reflects the frequency of errors in transactions that occur within the protocol.

• Transaction Latencies (T): This measures the delay in transaction processing, which can affect the protocol's reliability.

The unreliability score is calculated as a weighted sum of these components:

U=wd⋅D+we⋅E+wt⋅TU=wd​⋅D+we​⋅E+wt​⋅T

Where:

• w_d: Weight assigned to Daily Downtime (D).

• w_e: Weight assigned to Error Rates (E).

• w_t: Weight assigned to Transaction Latencies (T).

2. Security Score (S)

The security score (S) evaluates the protocol's risk based on fundamental factors such as:

• The audit status of the protocol.

• Historical security incidents, which could indicate the likelihood of future vulnerabilities.

Importance of the Risk Assessment

The sigmoid function used to calculate the protocol risk score ensures that the final score is normalized. This allows it to be compared across different systems or protocols in a standardized way. By combining the unreliability score (U) and the security score (S), Ringo can assess the overall protocol risk (Rp) and make adjustments to ensure the security and reliability of the system, protecting user funds.

This assessment is essential for maintaining the operational health of the Ringo protocol, especially as it operates across decentralized finance systems.