This 0.5% would represent the default risk, or risk factors tied to the mechanisms of DAI, such as scenarios of the whole system de-pegging from the USD, or risks pertaining to its collateralized asset ETH, and additional counterparty risks of the lending platform itself. [...] Though this is an example of risk in the custodial element of a token, understanding the mechanism of token creation can allow us to identify the existing risks for a cryptocurrency. [...] Counterparty risk If we assume the likelihood of a protocol being exploited is 0.58%, then how do we quantify the level of trust people place on said riskier platforms at a given period in time? One way is to compare the prices of an asset on two or more platforms to measure the level of trust placed on the counterparty. [...] As the total liquidity stays constant, a fluctuation in price can change the size of each token’s liquidity pool and consequently the value of a provider’s stake in the pool. [...] The new value of the liquidity provider’s 1% stake in the ETH pool comes to 0.97 ETH and 1% in the USDT liquidity pool comes to 102.4 USDT.
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