> ## Documentation Index
> Fetch the complete documentation index at: https://docs.dynamo.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# Risk Dashboard Methodology

> Every score, tier, and formula on the Risk Dashboard, broken down with formulas, thresholds, and data sources.

## Overview

**Scope:** every score is computed *per chain*, from the [Morpho markets](https://dynamo.finance/) that exist on whichever chain your wallet is connected to. Switching chains recomputes everything. The Fear & Greed Index is the one exception.

#### Data sources

| Source                                                                                                     | Used for                                                   |
| :--------------------------------------------------------------------------------------------------------- | :--------------------------------------------------------- |
| Morpho Blue contracts (wagmi/viem)                                                                         | Market state: oracle, LLTV, totalAssets, totalBorrowAssets |
| Morpho REST API                                                                                            | Bad debt fields, market metadata, 30-day historical APY    |
| On-chain oracles + CoinGecko fallback                                                                      | Token prices for borrower health-factor calculation        |
| [alternative.me](http://alternative.me)[Fear & Greed](https://alternative.me/crypto/fear-and-greed-index/) | Global crypto sentiment widget (external)                  |

#### Update cadence

Data refreshes every 5 minutes. The **"Updated"** pill in the page header reflects the wall-clock age of the last fetch.

**Important:** every score on the Risk Dashboard is a heuristic for surfacing patterns. None of them are predictions, recommendations, or a substitute for reading market parameters yourself. Always verify before supplying, borrowing, or moving capital.

## Page Header Metrics

Top-right of the dashboard. Four compact pills, scoped to the connected chain.

| Pill        | Definition                                                                                                       |
| :---------- | :--------------------------------------------------------------------------------------------------------------- |
| **Markets** | Count of Morpho Blue markets with at least one supply position. Excludes empty markets.                          |
| **TVL**     | Sum of totalMarketSize (USD) across those markets. Computed from on-chain totalAssets × loan-asset oracle price. |
| **Flagged** | Sum of totalMarketSize (USD) for markets classified Medium or High risk. See Risk Tier Classification below.     |
| **Updated** | Wall-clock age of the last data fetch (e.g. "32 sec ago"). Refreshes every 5 minutes.                            |

### Flagged TVL Banner

The wide banner near the top showing total flagged USD, percentage of chain TVL, and a Low / Medium / High breakdown.

**Flagged TVL** is the USD sum of all markets where `riskLevel !== "low"`. The breakdown chips show the same USD totals split by tier.

The banner is **not a liquidation predictor**. A flagged market can remain healthy for months; an unflagged market can still suffer liquidations if its collateral price moves fast. The signal is "this market has structural properties that warrant extra attention," not "this market is about to break."

### Risk Tier Classification

Every market gets one of three tiers. The full classification logic (defined in `src/hooks/useMorphoMarkets.ts`):

```text theme={null}
riskLevel:

= "low" if lltv >= 86 AND tvl > $10M AND marketAgeDays >= 90

​= "medium" if lltv >= 77 AND tvl > $1M AND marketAgeDays >= 30

​= "high" otherwise
```

In plain words:

* **Low risk:** large, mature market with a conservative LLTV. The kind of market most users supply into.
* **Medium risk:** mid-sized or younger market, or a slightly aggressive LLTV. Workable for experienced users who understand the parameters.
* **High risk:** small or very new market, or aggressive LLTV. Treat as experimental.

LLTV thresholds (86% / 77%) reflect typical Morpho Blue templates. TVL and age thresholds are stability proxies: a large mature market has survived volatility, while a small new market hasn't been tested yet.

### Systemic Risk Score

The big gauge near the top, 0 to 100. A TVL-weighted composite of five signals across all markets on the connected chain.

#### Formula

```text theme={null}
Systemic = 0.25 · Volatility

 + 0.20 · UtilizationStress

 + 0.20 · LiquidationClustering

 + 0.20 · LiquidityConcentration

 + 0.15 · OracleDependency
```

#### Interpretation bands

| Range     | Reading                                                                                                    |
| :-------- | :--------------------------------------------------------------------------------------------------------- |
| 0 to 32   | Healthy. Market parameters are spread out, oracles diversified, rates stable.                              |
| 33 to 65  | Elevated. At least one component is straining. Check which one in the gauge breakdown.                     |
| 66 to 100 | Stressed. Multiple components co-flag. Borrowing or supplying without reading market parameters is unwise. |

#### Component: Volatility (weight 25%)

TVL-weighted standard deviation of `borrowRate` across markets, rescaled so 5 percentage-point std = 100.

```text theme={null}
std = weighted_std(borrowRate, weight = totalMarketSize)

Volatility = clamp((std / 5) × 100, 0, 100)
```

Approximates "how much do borrow rates disagree across markets." When all markets converge to the same rate, volatility reads low. When rates spread out (some at 1%, others at 12%), it reads high.

#### Component: Utilization Stress (weight 20%)

TVL-weighted average of utilization across markets.

```text theme={null}
avg_util = weighted_mean(utilization, weight = totalMarketSize)

UtilizationStress = clamp(avg_util, 0, 100)
```

50% utilization → 50. 100% utilization → 100. High utilization means borrowers are using most available capital, raising rates and reducing withdrawal liquidity for suppliers.

#### Component: Liquidation Clustering (weight 20%)

Inverse TVL-weighted std-dev of the `lltv - utilization` buffer across at-risk markets (risk tier ≠ low). Rescaled so 10 pp std = 0 risk, 0 std = 100 risk.

```text theme={null}
at_risk = markets where riskLevel !== "low"

buffers = max(0, lltv - utilization) for each at_risk market​

std = weighted_std(buffers, weight = totalMarketSize)

LiquidationClustering = clamp(100 - (std / 10) × 100, 0, 100)
```

When buffers cluster tightly around a single value (low std), many positions sit at the same distance from liquidation. A small price move could cascade. Wider spread = healthier. Returns 0 when fewer than 2 at-risk markets exist (no clustering signal possible).

#### Component: Liquidity Concentration (weight 20%)

Share of total chain TVL held by the top 3 markets.

```text theme={null}
top3_tvl = sum(top 3 markets by totalMarketSize)

total_tvl = sum(all markets totalMarketSize)

LiquidityConcentration = clamp((top3_tvl / total_tvl) × 100, 0, 100)
```

If three markets hold 90% of chain TVL, that 90 reads as concentrated systemic exposure: a problem in any of them would dominate the chain.

#### Component: Oracle Dependency (weight 15%)

Share of total chain TVL secured by the single most-used oracle address.

```text theme={null}
by_oracle[address] = sum(totalMarketSize where oracle = address)

top_oracle_tvl = max(by_oracle.values)

OracleDependency = clamp((top_oracle_tvl / total_tvl) × 100, 0, 100)
```

If one oracle secures 70% of TVL, a feed outage would impact 70% of capital. Diverse oracle adoption reads lower.

### Fear & Greed Widget (External)

This widget shows the [alternative.me](http://alternative.me)[ Crypto Fear & Greed Index](https://alternative.me/crypto/fear-and-greed-index/), updated daily.

It reflects **global crypto market sentiment**, not Dynamo or Morpho specifically. Same value regardless of which chain you're on. The score combines volatility, market momentum and volume, social media, dominance, and Google Trends signals.

Values 0 to 24 read as Extreme Fear, 25 to 49 Fear, 50 to 54 Neutral, 55 to 74 Greed, 75 to 100 Extreme Greed. We display it as a complement to the Morpho-specific Protocol Heat below.

### Protocol Heat (Internal Sentiment)

Dynamo's own 0-to-100 sentiment score, computed from the markets on the connected chain only. Switching chains changes this; it reflects Morpho activity on that specific chain.

#### Formula

```text theme={null}
ProtocolHeat = 0.30 · UtilizationComponent

 + 0.25 · BorrowApyComponent

 + 0.20 · WarningComponent

 + 0.25 · RiskDistComponent
```

```text theme={null}
UtilizationComponent = 100 - weighted_mean(utilization, by tvl)

 (higher util → less greedy available capital → lower score)

BorrowApyComponent = 100 - clamp((weighted_mean(borrowRate) / 8) × 100, 0, 100)

​ (rates above 8% read as saturation)

WarningComponent = 100 - (warned_markets / total_markets) × 10

 (where warned = m.verified === false)

RiskDistComponent = (low_tier_tvl / total_tvl) × 100

 (share of TVL in healthy markets)
```

#### Labels

| Range     | Label         |
| :-------- | :------------ |
| 0 to 19   | Extreme Fear  |
| 20 to 39  | Fear          |
| 40 to 59  | Neutral       |
| 60 to 79  | Greed         |
| 80 to 100 | Extreme Greed |

**Why two sentiment scores?** The external Fear & Greed reflects the broader crypto market's mood. Protocol Heat tells you whether [Morpho crypto](https://dynamo.finance/) lending activity on this chain is in a hot or cold cycle. The two often diverge (e.g. macro Fear plus Morpho Greed when rates spike during a sell-off).

## Liquidations Panel (Per-Market)

When you select a market in the per-market section, four numbers are shown.

#### LLTV (Liquidation Loan-to-Value)

Pulled directly from the Morpho Blue market struct as a percentage. The maximum borrow position size relative to collateral value before liquidation is allowed.

#### Liquidation Penalty (LIF)

Computed from LLTV using the Morpho Blue Liquidation Incentive Factor formula:

```text theme={null}
β = 0.3 (CURVE_STEEPNESS)

LIF_MAX = 1.15 (15% cap)

LIF = min(LIF_MAX, 1 / (β · LLTV + (1 − β)))

penalty (%) = (LIF − 1) × 100
```

Worked examples:

| LLTV  | Penalty |
| :---- | :------ |
| 86%   | 4.38%   |
| 91.5% | 2.62%   |
| 96.5% | 1.06%   |

Higher LLTV markets have lower penalties (closer to 100% allowed leverage). The penalty is what liquidators pocket above the debt they cover; the position holder forfeits it as a haircut on their collateral.

#### Realized Bad Debt

Cumulative bad debt that has been written off and socialized across the market's lenders. Pulled from Morpho API field `Market.realizedBadDebt { underlying, usd }`.

Example: if a liquidation fails to fully cover a borrower's debt (collateral insufficient even after the penalty), the protocol absorbs the gap. That gap, written off the books, accumulates into Realized Bad Debt.

Healthy markets show \$0 here. Non-zero realized bad debt is a signal that liquidations have happened and not been fully covered in the past.

#### Unrealized Bad Debt

Currently underwater debt that is still on the books: a borrower's collateral is worth less than what they owe, but the loss has not been written off yet. Pulled from Morpho API field `Market.badDebt { underlying, usd }`.

Unrealized rising without realization usually means liquidators have not yet stepped in (either because penalties are insufficient, gas costs exceed the bonus, or liquidator bots are missing the chain).

### Health Factor (Per-Position)

For each borrower position on a selected market, Health Factor is computed on-chain at oracle price:

```text theme={null}
maxBorrow = (collateral × oraclePrice / ORACLE_PRICE_SCALE) × LLTV / WAD

HF = maxBorrow / borrowAssets
```

Interpretation:

| Health Factor | Reading                                                  |
| :------------ | :------------------------------------------------------- |
| HF > 2.0      | Healthy buffer                                           |
| 1.5 to 2.0    | Moderate buffer                                          |
| 1.0 to 1.5    | Stress zone (small price move could trigger liquidation) |
| HF ≤ 1.0      | Liquidatable                                             |

The Stress Zone metric below tracks the percentage of top borrowers in the 1.0 to 1.5 band.

### Per-Market Analysis Metrics

In the "Drill Down" section, after selecting a market, the dashboard shows the following per-market signals.

#### 30-Day APY Trend

A sparkline of borrow APY over the trailing 30 days, sourced from Morpho API `historicalState.borrowRate`. Values are rescaled to 0-100% if the API returns 0-1 fractions.

#### Percentage-Point Change

Absolute change between the first and last points of the 30-day window:

```text theme={null}
ppChange = last_point.y - first_point.y
```

#### APY Anomaly (z-score)

Z-score of the latest APY observation against the trailing window (excluding the latest):

```text theme={null}
mean = average(window)

std = stddev(window)​

z = (latest - mean) / std
```

|z| > 2 is flagged as an anomaly in the Actionable Insights. Returns null when std = 0 or the window has fewer than 7 points (insufficient signal).

#### 30-Day Trend Direction

Up, down, or flat between the first and last points:

```text theme={null}
flat if |last − first| < max(|first| × 0.005, 0.001)

up if last > first

down if last < first
```

The 0.5% threshold avoids flagging noise.

#### Liquidation Clusters

Groups of borrowers whose health factors fall within ±5% of each other. Each cluster shows count, average HF, and total collateral exposure.

```text theme={null}
Sort borrowers by healthFactor ascending.

For each borrower b:

If b.HF ≤ groupAnchor × 1.05: add to current cluster

Else: emit cluster if size ≥ 2, start new cluster
```

A "critical cluster" (used by the Actionable Insights) has count ≥ 3 and avgHF \< 1.3. Intuition: when three or more positions are stacked near liquidation, a small adverse price move can cascade them all at once.

#### Stress Zone Percentage

Share of valid borrower positions with HF \< 1.5:

```text theme={null}
stress_zone (%) = (count where HF < 1.5) / (count of valid HF) × 100
```

Quick scan of how exposed the borrower base is to a moderate price move.

### Actionable Insights

The dashboard surfaces up to 5 ranked insights from a five-rule library, sorted by severity (critical > warning > info) then by exposure size.

| #  | Rule                        | Severity | Trigger                                                                                        |
| :- | :-------------------------- | :------- | :--------------------------------------------------------------------------------------------- |
| 1  | Borrow pressure rising      | Warning  | Market has utilization > 85% AND borrow APY > 4%.                                              |
| 2  | Liquidation cluster forming | Critical | Selected market has a cluster with count ≥ 3 AND avgHF \< 1.3.                                 |
| 3  | Oracle concentration risk   | Critical | Top single oracle address secures > 50% of TVL on the chain.                                   |
| 4  | Safer alternative available | Info     | Highest-TVL high-risk market has a sibling low-risk market with the same collateral/loan pair. |
| 5  | APY anomaly                 | Warning  | Selected market has \|z-score\| > 2 (latest APY > 2σ from 30d mean).                           |

Multiple rules can fire on the same chain. The list is capped at 5 items; ties are broken by exposure (USD weight).

### Data Cadence & Freshness

| Metric                                    | Refresh | Source                                      |
| :---------------------------------------- | :------ | :------------------------------------------ |
| Markets list, TVL, utilization, LLTV      | 5 min   | Morpho Blue contracts via wagmi/viem        |
| Bad debt, market metadata, historical APY | 5 min   | Morpho REST API                             |
| Borrower health factors, oracle prices    | 5 min   | On-chain reads                              |
| Fear & Greed (external)                   | Daily   | [alternative.me](http://alternative.me) API |

The "Updated" pill in the page header shows the age of the last fetch in human-readable form.

### What This Dashboard Is Not

* **Not a liquidation predictor.** Flagged TVL and at-risk tier classification are structural heuristics, not price models. We do not estimate the probability that a specific market will be liquidated.
* **Not financial advice.** Every score is a pattern-surfacing tool. Read the underlying market parameters (LLTV, oracle, curator, liquidity) before transacting.
* **Not exhaustive of all on-chain risk.** Smart-contract bugs, oracle manipulation, governance attacks, and cross-protocol composability risks are not captured by any score on this page.

### Glossary

| Term                   | Definition                                                                                                                                          |
| :--------------------- | :-------------------------------------------------------------------------------------------------------------------------------------------------- |
| **LLTV**               | Liquidation Loan-to-Value. The maximum debt position size relative to collateral value before liquidation is allowed.                               |
| **Health Factor (HF)** | Ratio of max-allowed-borrow to actual-borrow. HF > 1 = healthy; HF ≤ 1 = liquidatable.                                                              |
| **Utilization**        | totalBorrowAssets / totalAssets. The share of supplied capital currently borrowed.                                                                  |
| **TVL**                | Total Value Locked. Sum of totalAssets × loan-asset price, in USD.                                                                                  |
| **Bad Debt**           | Debt position whose collateral has dropped below the owed amount. Unrealized = still on books; Realized = written off and socialized to lenders.    |
| **Oracle**             | The price feed contract [Morpho crypto](https://dynamo.finance/) markets consult to value collateral. Each market specifies its own oracle address. |
| **LIF**                | Liquidation Incentive Factor. The bonus liquidators receive for closing underwater positions. Penalty = (LIF − 1) × 100%.                           |

Source-of-truth lives in the repo at `src/lib/risk.ts`, `src/hooks/useRiskMetrics.ts`, `src/hooks/useMarketRiskAnalysis.ts`, `src/hooks/useActionableInsights.ts`, and `src/pages/RiskDashboard.tsx`. The implementation is the spec; this page is its translation into plain language.