Protocol Due Diligence
8 assessment areas for evaluating lending markets, DEXs, yield aggregators, and derivatives platforms. Works alongside our General DD and Asset DD frameworks.
Protocol Design and Mechanics
Core Mechanism
Core mechanism and how it generates yield.
User Flow
User flow and interaction patterns within the system.
Capital Efficiency
Capital efficiency model and asset utilization.
Design Choices
Innovation vs. battle-tested design choices.
Proven Model and Lineage
Implementation
Fork vs. original implementation origins.
History
History of the underlying model and architecture.
Vulnerabilities
Known vulnerabilities in similar systems.
Departures
Departures from proven designs and their implications.
Fee Structure and Economic Model
Protocol Fees
Protocol fee breakdown and distribution among participants.
Sustainability
Revenue sustainability without reliance on incentives.
Competitiveness
Fee competitiveness compared against alternative platforms.
Value Capture
Value capture mechanism designed for key stakeholders.
Operational History and Stress Performance
Time & TVL
Time in production and historical TVL metrics.
Volatility
Behaviour and performance during market volatility.
Incidents
Past incidents and the quality of the team's response.
Reliability
Uptime and general reliability track record.
Liquidation and Risk Curation
Mechanism
Liquidation mechanism and liquidator incentives.
Bad Debt
Bad debt handling and socialization methods.
Risk Parameters
Risk parameters including LTV, Collateral Factors, and caps.
Performance
Historical liquidation performance under stress.
Dependency Chain
Oracles
Oracle dependencies and established fallbacks. See our oracle security framework.
Integrations
External protocol integrations and interactions.
Bridged Assets
Bridged asset exposure and associated risks. Review cross-chain risk factors.
Infrastructure
Infrastructure dependencies such as RPCs and indexers.
Integration and Composability Risk
Composability
How the protocol composes and interacts with others.
Flash Loans
Flash loan attack surface and mitigation strategies.
Reentrancy
Reentrancy and callback execution risks.
Audit Coverage
Integration audit coverage for external connections.
Governance Attack Surface
Distribution
Governance token distribution and centralization. See governance assessment.
Bribery
Vote buying and protocol bribery exposure.
Governance Attacks
Flash loan governance attacks and prevention.
Thresholds
Proposal threshold requirements and timelock adequacy. Missing timelocks = instant disqualification.
Foundational governance, security, and economic design evaluation →
Deep-dive into tokens, stablecoins, LSTs, and LRTs evaluation →
L1s, L2s, and infrastructure layer security and decentralization analysis →
Critical warning signs that immediately disqualify any opportunity →
Comprehensive Due Diligence
Protocol Due Diligence is just one pillar of our comprehensive evaluation framework.
View Full DD Framework