Risk Curation

Market Definition & Risk Curation

The creation of a SAFU market is initiated by an approved Risk Curator, who defines the market’s risk and economic parameters prior to deployment. From the curator’s perspective, the core responsibility is to determine the Optimal Coverage Level (OCL), representing the target percentage of total TVL that the market is optimally designed to insure, and to calibrate the Optimal Yield Sacrifice (OYS) framework required to sustain that coverage level.

To do so, the Risk Curator performs a structured risk assessment of the insured asset or protocol, focusing on the specific risk(s) being covered. This assessment may include economic, design, operational, and, where applicable, smart contract risk. Quantitative techniques such as loss distribution analysis, tail-risk modeling, and stress testing are used to justify the selected OCL and ensure that the market remains solvent under adverse but plausible scenarios. As compensation for this ongoing assessment and monitoring role, Risk Curators earn a fee denominated as a percentage of the yield sacrificed by insured users, directly aligning incentives with market sustainability.

Market Validation & Activation

If the insured risk includes smart contract risk, the market is curated jointly by the primary Risk Curator and one or more audit or security firms acting as co-Risk Curators. In this setup, both parties collaborate on defining coverage assumptions, validating upgrade paths, and confirming that the proposed OCL and OYS are consistent with the technical and security properties of the underlying contracts.

For markets where smart contract risk is not part of the insured scope, the market may be curated by a single Risk Curator without external co-curation. Once the curation process is completed, the market is approved for activation and deployed on SAFU. The market then operates around the defined optimal coverage target (OCL) and OYS framework, with continuous monitoring by the Risk Curators. Material changes to the insured system may trigger a joint reassessment of parameters to maintain alignment with the market’s evolving risk profile.