Hey Edge readers,
We just published Evaluating Risk in DeFi in collaboration with DeFiLlama, a deep dive into how DeFi risk really works, and why the protocols you use every day might be safer than you think. From stablecoin vaults to st strategies, the report unpacks how risk is measured, where it’s misunderstood, and why Exponential’s public ratings can help you navigate it all with more confidence.
Stay sharp. 🫡
- The Exponential team
This report is packed with incredible DeFi alpha to give you a comprehensive view of where yields come from and where the hidden risks live. But the most important insight? The DeFi protocols we use every day, like Aave, Curve, Yearn, Morpho, and EtherFi, are proving to be far more reliable than many assume.
That leads to a powerful conclusion: there's still a massive market inefficiency. Users can earn attractive, sustainable yields while taking on far less risk than is commonly perceived.
In Evaluating Risk in DeFi, we share our full risk rating methodology, release backtested data, and show why standardized, transparent ratings are the missing layer for unlocking the next wave of DeFi adoption.
Here are the 3 big takeaways:
1. The risk of default is predictable and often overstated
Exponential’s A–F risk scores aren’t theoretical. They’ve been backtested across major DeFi events, from the Euler exploit to Terra’s collapse, and the results are clear: A-rated protocols like Aave, Yearn, and Morpho had zero defaults and zero user losses. Even B-rated protocols like Euler, which suffered a major exploit, managed full recovery of user funds.
In contrast, F-rated protocols like Terra and UST experienced catastrophic losses—with nearly 80% default rate and almost 29% chance of losing money. This shows that risk can be quantified and anticipated, not blindly assumed.
2. The protocols powering today’s DeFi yields are extremely resilient
Protocols many users interact with daily, like Curve, Uniswap or EtherFi, often fall within the A–C rating tiers. Despite market volatility, bridge hacks, and liquidity crunches, they’ve demonstrated strong uptime, secure design, and well-functioning recovery mechanisms.
For example, Curve (rated C) withstood a critical Vyper exploit but avoided major user losses thanks to community coordination. EtherFi’s Liquid ETH Vault, which uses battle-tested infrastructure like Sommelier and integrates strategies across Aave, Uniswap, and Pendle, received a C rating despite its complexity, highlighting its diversified yield approach and controlled risk posture.
3. There’s alpha in understanding risk because the market doesn’t
DeFi still prices risk inefficiently. Many pools with strong ratings and consistent yield are overlooked by investors chasing double-digit APYs in protocols that score poorly on security, liquidity, or governance. But the data shows: risk-adjusted yield is best captured in the middle tiers, where yield is still meaningful, but the probability of loss is near-zero.
This presents a rare opportunity: with tools like Exponential’s public risk framework, users can see exactly what risk they’re taking, and avoid the mispriced chaos of unaudited or over-leveraged protocols. This is the bridge from wild west speculation to smart, institutional-grade DeFi.
If you're serious about yield in DeFi, you need to be serious about risk too. Check out the full report below:
assets.dlnews.com
https://assets.dlnews.com/dlresearch/DL_Research_Report_Evaluating_Risk_in_DeFi.pdf
In the news 🗞️
- Sky Prepares to Enforce Endgame Token Migration: DeFi protocol Sky (formerly Maker) plans to finalize its Endgame overhaul by penalizing late upgrades from MKR to SKY and shifting governance control entirely to SKY holders. Despite incentives, adoption of its new stablecoin USDS and governance token remains low, prompting a move from carrot to stick.
- Solana Now Leads DeFi in dApp Revenue: Solana has overtaken all Layer 1s in dApp revenue, capturing over 50% of total DeFi earnings, a 166x jump from last year. Driven by memecoin activity and platforms like PumpFun, Solana now far outpaces Ethereum, which holds just 12.8% of the market.
- Ether.fi’s Token Surges 86% After Buyback Expansion: ETHFI nearly doubled after Ether.fi boosted token buybacks using protocol revenue and exit fees, returning value directly to stakers. With $7B in TVL and growing attention from figures like Arthur Hayes, the protocol is leaning into a fundamentals-driven narrative and DeFi-native banking.