Frameworks

The RWG employs a combination of quantitative and qualitative measures to fulfill its many responsibilities - ranging from parameterizing FiRM markets and performing due diligence on new lending opportunities, to assessing liquidity strategies and managing a complex array of Inverse products including but not limited to the DOLA PSM, Cross-chain sINV and sDOLA via Chainlink CCIP, and the various DOLA Fed facilities. Their evolution and use cases have been discussed on the Inverse Finance Forum as part of our ongoing “Behind the Scenes” series.

Collateral Parameterization Model

The Collateral Parameterization Model maps the interactions between various market parameters, including Supply Ceiling, Collateral Factor, Liquidation Factor, Liquidation Incentive, and Fee. By using simulation data derived from price impacts of the underlying asset, this tool allows us to simulate and analyze the interplay between these parameters. It provides insights into their combined effects on the ecosystem's health, enabling us to set parameters that balance risk and opportunity effectively.

Liquidation Factor Model

Our Liquidation Factor Model determines the optimal liquidation factor by simulating the total gas spent by a liquidator using platforms like Tenderly. It takes into account the liquidation incentive and other variables to set the most efficient liquidation factor. This model ensures that the liquidation process is cost-effective for liquidators, encouraging their participation and thereby maintaining market stability.

Daily Borrow Limits Framework

The Daily Borrow Limits Framework leverages comprehensive data extraction and analysis from the largest liquidity pools of the underlying collateral. By analyzing liquidity pool data, we can set daily borrow limits that prevent excessive borrowing and mitigate risks associated with liquidity crises or market manipulation. This proactive approach helps in maintaining a balanced borrowing environment that safeguards both the protocol and its users.

Risk Observer Checklist

The Risk Observer Checklist is a weekly deliverable that provides a concise overview of key health indicators for Inverse Finance products, including FiRM. This checklist includes sections such as Parameter Modeling with Price Impact Data, Collateral Integrity Checkup, and DOLA Health. By setting a regular cadence for updating these models, the checklist allows us to proactively monitor and adjust parameters based on evolving market conditions, ensuring the ongoing robustness of our risk management strategies.

Contract Ledger

The Contract Ledger is a foundational framework designed to catalog and monitor the smart contract infrastructure that powers Inverse Finance. Built as a master spreadsheet with structured metadata and supporting automation, it serves as a living single source of truth for our deployed contracts, their dependencies, access control structures, and audit statuses. Specialized views such as the Scope List, Audit Tracker, Dependencies View, and Heartbeat Monitor transform raw contract data into actionable insights, improving governance oversight, protocol security, and operational efficiency. By centralizing contract intelligence and layering in real-time monitoring capabilities, the Contract Ledger strengthens Inverse Finance’s ability to scale safely while preserving institutional knowledge as the protocol evolves.

Proof-of-Review (PoR) System

Designed to ensure that all governance proposals—particularly those with significant risk implications—undergo thorough scrutiny before submission; PoRs provide structured sign-offs from key stakeholders, guaranteeing that each change aligns with Inverse Finance’s risk management standards. The current system combines multi-role sign-offs, automated sanity checks, and improved governance. Each proposal must gather specific sign-offs—such as from the RWG, PWG, and contract developers—before it can be submitted. Simultaneously, automated scripts run simulations to catch dangerous configurations (e.g., extreme collateral values or oracle prices), and a revamped UI highlights potential anomalies.

Daily Borrow Limits Framework (v2)

The RWG developed a comprehensive risk-adjusted methodology synthesizing oracle feed quality, PPO reliability, protocol lindy, concentration risk, and junior tranche coverage into quantifiable limit calculations. This framework shifted FiRM from organic, growth-driven limit setting to systematic, evidence-based risk management. Markets are grouped by shared oracle feeds to manage aggregate exposure, with final limits capped at 10% of market ceilings regardless of positive multipliers.

Stablecoin Exposure Limits Dashboard

Developed with the AWG, the Stablecoin Exposure Limits Dashboard provides real-time monitoring and data-driven ceiling methodologies for stablecoin collateral markets. The framework tracks supply distribution across chains, mainnet liquidity across major DEXs (Curve, Uniswap, Balancer), competitor lending market utilization (Aave, Morpho, Euler, Fluid), and safety buffers including insurance funds, collateralization ratios, and staked supply percentages. A calculated Factor of Safety determines theoretical supply ceiling limits, providing systematic, evidence-based exposure recommendations for governance decisions.

Liquidation Infrastructure Framework

The Liquidation Infrastructure Framework evolved from the Liquidator Grant Program into systematic liquidation coverage validation. The RWG deploys controlled test positions measuring liquidation response times across sensitive markets. Initial testing validated definitive proof of robust organic coverage - new markets are immediately monitored by both replenish and liquidation bots, with no profitable positions sitting unliquidated. Funds are spent at the discretion of the RWG and are predominantly reserved for genuinely exotic collateral types with complex liquidation paths, ensuring validation accompanies novel market launches.