> For the complete documentation index, see [llms.txt](https://promethium.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://promethium.gitbook.io/docs/safety-framework.md).

# Safety Framework

Promethium's risk management strategy is underpinned by a comprehensive risk framework that evaluates potential risks from smart contracts, counterparties, oracles, and market factors. This framework is designed to ensure that only the most secure and reliable protocols are integrated with Promethium. Here's a closer look at how each risk is assessed.

## Generic risks

#### 🔹 **Smart Contract Risks**

Promethium evaluates credit protocols based on a binary principle: if a protocol fails to meet any of the criteria, it is not integrated. The criteria for smart contract risks include:

* The protocol must have been operational for over a year.
* The protocol must have undergone audits.
* The protocol's Total Value Locked (TVL) over the past 90 days must exceed $3 million.

These parameters ensure that only well-established and audited protocols with a significant amount of locked value are considered.

#### 🔹 **Counterparty Risks**

Counterparty risks are assessed based on the following parameters:

* The protocol must have multisig and timelock mechanisms in place, or be managed through a DAO.
* The team behind the protocol must have a good reputation, and there should be known investors or funds involved.

These criteria ensure that the protocol has robust security measures and is backed by a reputable team and investors.

#### 🔹 **Oracle Risks**

For a protocol to be integrated with Promethium, it must use reliable oracles. Oracles are third-party services that provide smart contracts with external information. They play a crucial role in many DeFi protocols, and their reliability is critical to the protocol's overall security.

#### 🔹 **Market Risks**

Promethium ensures that no dubious assets are present in the integrated pool. Assets with no market history, low liquidity, questionable team reputation, or a risk of a "rug pull" are not accepted. This is to prevent the occurrence of bad debt in the protocol.

In summary, Promethium's risk framework is a comprehensive tool for assessing and managing various risks associated with DeFi protocols. By setting high standards for smart contract, counterparty, oracle, and market risks, Promethium ensures a secure and reliable platform for its users.

Promethium employs a strategic approach to manage its deposit portfolio and borrowing risks. This approach is defined by two key risk parameters for deposits and three for borrowing.

## Deposit and borrowing risk parameters

#### 🔹 **Deposit Portfolio Distribution: MAMM and MALS**

Promethium uses the Maximum Allocation per Money Market (MAMM) and Maximum Available Liquidity Share (MALS) parameters to manage its deposit portfolio.

MAMM sets the maximum share of the Promethium pool that can be deposited into a single protocol. This parameter ensures the diversification of Promethium's portfolio, reducing the risk associated with over-reliance on a single protocol.

MALS sets the maximum share that Promethium's deposit can make up in a pool's available liquidity. This parameter protects against the risk of pool illiquidity, where Promethium might not be able to withdraw its deposit due to full utilization of the pool.

#### 🔹 **Borrowing Risk Parameters: LTV, LT, and LB**

For borrowing, Promethium sets the Loan-to-Value (LTV), Loan Term (LT), and Loan Balance (LB) risk parameters at the most conservative levels among all protocols used for refinancing a position for a given asset. An additional 5% is subtracted from the lowest LTV to provide an extra margin of safety for the position. This approach allows the use of all integrated protocols for refinancing.

In summary, Promethium's risk parameters provide a comprehensive framework for managing its deposit portfolio and borrowing risks. By implementing these parameters, Promethium ensures a balanced portfolio distribution and a conservative borrowing approach, thereby providing a secure and reliable platform for its users.