Lending vault underwriting methodology
How Cork estimates permanent loss in vaults that allocate capital to lending markets.
Cork estimates the chance and size of permanent loss in a lending vault. The assessment follows the vault's capital into each market, models the borrowers and collateral behind it, and shows where loss could reach depositors.
How a lending vault becomes a loss distribution
- Vault and market map Record the supplied asset, allocations, markets, and price feeds.resolve each market's collateral
- Collateral and dependencies Trace each asset's backing, liquidity, recovery routes, and shared dependencies.combine asset risk with position state
- Borrower groups Group loans by debt size and distance from liquidation.test when debt becomes unrecoverable
- Liquidation and recovery Test when loans become unsafe and how much debt the collateral can repay.aggregate market-level bad debt
- Portfolio loss paths Combine market losses and shared dependencies across simulation paths.summarize the loss distribution
- Rating and loss measures Calculate the rating, probability of loss, expected loss, and tail loss.
The questionLink to this section: The question
A lending vault supplies one asset across several lending markets. Each market has its own collateral, borrowers, price feed, liquidation rules, and routes for turning seized collateral back into the asset the vault supplied.
Cork asks: how often could the vault finish one year with more than 1% of its starting value permanently lost?
The answer includes a letter rating, the probability and expected size of loss, the shape of severe outcomes, and the markets and assets that drive the result.
Where the method appliesLink to this section: Where the method applies
The method covers vaults that allocate depositor assets to collateralized lending markets. Morpho Vaults are the main implementation in the dashboard. The same approach can support another lending protocol when its markets, borrowers, price feeds, liquidation rules, and collateral recovery routes can be measured.
Reading the resultLink to this section: Reading the result
Start with the letter rating and probability of loss. Then compare expected loss with the vault's yield and use the loss distribution to judge severity. The market and asset sections explain which positions drive the result and why.
Protection pricing is calculated separately for a 30-day term.
Continue with What counts as a loss.