DeFi Economic & Financial Risk Evaluation Guidelines

PURPOSE

Analyze decentralized finance strictly from an economic and financial engineering perspective. Focus on financial mathematics, incentive structures, capital efficiency, and systemic market risk. Do NOT evaluate smart contract architecture, code-level vulnerabilities, or technical exploits.

1. Oracle & Data Feed Economics

Assess the economic vulnerability of how the protocol ingests off-chain pricing.

• Manipulation Cost: Estimate the capital required to move the oracle price (e.g., flash loan + TWAP manipulation) vs. the extractable profit. If attack profit > attack cost, the oracle is economically broken.
• DEX Depth Dependency: For on-chain oracles, assess the spot liquidity depth of the underlying market. Thin markets = cheap manipulation.
• Latency Arbitrage: Evaluate financial losses from stale prices during high-volatility events (e.g., gap risk between index and mark price on a perp).

2. Perpetual DEX & Leverage Risk