# Risk Rating

Brokkr team is conducting a deep analysis of the protocols used which is used to determine the Risk Ratings.

The Risk Rating is a representation of how risky the strategy is, the higher the risk rating the riskier the strategy is. Usually the higher risk strategies accrue higher yields.

The Risk rating is determined on the strategy levels where we look at many different areas to determine the fairest possible evaluation. These include but are not limited to:

- Strategy type
- Source of revenue
- Amount of pools used and their depth
- Off-chain trigger requirements
- Assets used
- Bridge utilization
- Strategy complexity
- Protocols used and their credibility
- Audits
- Team

The Risk Rating for each strategy is determined by looking at more than 30 factors with each factor being valuated and contributing towards the final mark.

The risk ratings can range anywhere between 1-10 with 1 being the safest and 10 being the most risky:

- 1 - 3: Safe yield farming strategies where users should always expect to receive more assets that they deposited
- 4 - 6: Strategies that are designed to provide yield returns but could in certain scenarios return less value than expected
- 7 - 9: Strategies that mostly rely on using volatile assets
- 10: Most risky strategies where the user can either make it or break

Risk ratings for portfolios are determined in a very simple way.
It is a collective weighed average of the Risk Ratings of the underlying strategies and rounded to the nearest whole number. This means that each Strategy contributes it's score to portfolio in the % of the allocation the portfolio has towards it.

*Example: portfolio A is invested into 3 strategies (strategy B, C and D) with strategy B and C having 40% allocation and strategy D the remaining 20%. Strategy B risk rating: 4 Strategy C risk rating: 2 Strategy D risk rating: 7*

*Portfolio risk rating is calculated:*

0.4 * 4 + 0.4 * 2 + 0.2 * 7 = 3.8
-> after rounding the risk rating of portfolio A would be 4

Last modified 2mo ago