Analyze any DeFi protocol

A protocol name is not a financial explanation. Start with one user position, follow every asset and claim it creates, and keep asking what changes when the happy path fails.

This worksheet is an analysis aid, not an audit, proof, rating, or investment recommendation. Record implementation-specific answers and evidence rather than assuming that every protocol in a category behaves alike.

The eight-lens pass

Use the lenses in order on a first pass. Then repeat the pass for each important action—deposit, trade, borrow, repay, withdraw, liquidate, settle, claim, pause, and upgrade—because the actors and loss allocation can change by state.

1. Asset questions

First identify the economic resources, not only their token symbols. A balance shown in a contract can be a direct asset, a wrapped representation, or a claim whose value depends on another system.

1. What assets enter the protocol?
2. Who owns or controls them after deposit?
3. Are they held directly, wrapped, bridged, staked, or lent?
4. Can the protocol move them into another protocol?

Record: token and chain, amount and unit, controller or custodian, current location, transfer authority, and any backing or redemption dependency.

Start with Asset, Token, Asset versus claim, and Wrapped asset.

2. Claim questions

Every deposit receipt, LP position, debt record, vault share, derivative, or governance right needs an issuer or accounting system, a holder, an entitlement, and conditions under which that entitlement can be exercised.

Classify the position explicitly as a redeemable claim, pooled share, debt claim, derivative exposure, or governance right. If it is instead the resource recorded at the layer under analysis, label it a direct asset and name that layer.

1. What token or position does the user receive?
2. What exactly does that claim entitle the user to?
3. Is redemption guaranteed, conditional, delayed, or discretionary?
4. Is the claim backed one-to-one, overcollateralized, or dependent on a strategy?

Record: issuer or obligor, holder, entitlement, backing, seniority, transferability, redemption path, delay, fee, and failure condition.

Compare Claim, Claim token, and Vault share.

3. Primitive questions

Describe what the system does to positions. “Yield protocol” is a product label; trading, lending, staking, issuance, and derivative settlement are the financial transformations underneath it.

1. Is the protocol trading, lending, staking, issuing money, or creating derivatives?
2. Which operations are atomic?
3. Which operations depend on external actors?
4. Which operations can create leverage?

Record: action, preconditions, state read, state written, counterparty, external call, asynchronous step, and leverage effect.

Useful mechanism anchors include Swap, Lending pool, Proof of stake, and Perpetual future.

4. Return questions

An APY is an output of assumptions. Decompose it into economic payers and state changes before comparing the number with another product.

1. Who pays the yield?
2. Is the return funded by fees, borrowers, network issuance, asset income, or token inflation?
3. Is the stated APY sustainable without incentives?
4. Does earning the return require taking hidden price or liquidity risk?

Record: payer, payment asset, gross source, subsidy or issuance component, fees, leverage, compounding convention, time window, and conditions needed for the payment to continue.

Use Fee, Utilization and rates, Staking return, and Incentive to separate revenue, transfers, and issuance.

5. Price and oracle questions

A price is a measurement with a source, unit, timestamp, update rule, and failure policy. The economically relevant price may differ between quoting, collateral valuation, liquidation, accounting, and execution.

1. Which prices does the protocol use?
2. Where do they come from?
3. How quickly do they update?
4. What happens during extreme volatility?
5. Can the price be manipulated with temporary capital?

Record: base and quote unit, source venues, aggregation, heartbeat, deviation trigger, decimals, staleness check, confidence or liquidity limits, fallback, and every decision that consumes the value.

Trace Market information, Oracle, Price impact, and Oracle risk.

6. Control questions

Formal voting is only one control path. Include contract roles, signers, guardians, timelocks, upgrade administrators, off-chain operators, and the power to choose or replace dependencies.

1. Who can upgrade the contracts?
2. Who can pause the system?
3. Who can change fees, collateral rules, or oracles?
4. Is there a timelock?
5. Are governance votes concentrated?

Record: actor or role, exact capability, threshold, delay, scope, expiry, cancellation path, monitoring, and the user exit window before a change takes effect.

Map Wallets and keys, Multisignature control, Governance, and Upgrade risk.

7. Loss questions

Do not stop after naming a risk. State the trigger, the failed asset or claim, the propagation path, the first loss absorber, and who bears any remaining shortfall.

1. What can make the protocol insolvent?
2. Who absorbs bad debt?
3. Can withdrawals be delayed?
4. What happens if an integrated protocol fails?
5. Is there an insurance fund, reserve, or loss waterfall?

Record: trigger, detection, affected state, liquidation or settlement path, available liquidity, first-loss capital, backstop limit, residual claimant, and recovery authority.

Follow Bad debt, Solvency risk, Liquidity risk, Integration risk, and DeFi insurance and cover.

8. Balance-sheet lens

For every important state, write down both sides of the position. Tokens held by the protocol can be assets to the protocol while deposit receipts are claims or liabilities owed to users. A governance promise is not automatically a funded loss buffer.

Minimum protocol balance-sheet record

Side	Typical entries	Evidence to record
Assets	Tokens held directly; claims on other protocols; collateral receivable; off-chain assets	Controller, location, valuation rule, liquidity, and encumbrance
Liabilities	User deposits; stablecoins issued; borrowed assets; pending withdrawals; unpaid fees or obligations	Holder, amount, unit, seniority, maturity, and redemption condition
Equity or loss buffer	Treasury capital; insurance fund; junior tranche; explicitly funded governance backstop	Available amount, deployment authority, trigger, priority, and limit

The decisive question is:

If asset values fall or liabilities rise, what remains to protect users?

Reconcile the table before and after each action. If the accounting identity does not explain a new token, debt, fee, or loss, the model is incomplete.

Worked pass: stablecoin lending vault

The stablecoin lending vault case study applies the same lenses in a complete composition:

Table: Worked pass: stablecoin lending vault

Lens	Compact answer
Asset	Deposited stablecoins move from the user to a vault and then into a lending pool.
Claim	The user holds vault shares; the vault holds a lending-pool claim token.
Primitive	Vault share accounting packages lending and withdrawal operations.
Return	Borrowers pay interest; fees can divert part of the gross return.
Price	Stablecoin value, collateral prices, and vault accounting can use different measurements.
Control	Vault, lending, oracle, governance, pause, and upgrade authorities can differ.
Loss	Bad debt, depeg, illiquidity, integration, or accounting failure can reduce or delay redemption.
Balance sheet	Vault assets are the pool claim plus idle cash; vault shares are user claims on net assets.

One-page analysis output

Finish with a bounded record that another reader can challenge:

1. Position and scope: user, action, chain, implementation, version, and date.
2. Assets and claims: amounts, units, owners, obligors, backing, and redemption.
3. State transitions: preconditions, reads, writes, external actors, and leverage.
4. Return path: payer, source, fees, incentives, and continuation assumptions.
5. Price path: source, timing, units, consumers, manipulation, and fallback.
6. Control path: roles, powers, delay, concentration, monitoring, and exit.
7. Loss path: trigger, propagation, first loss, residual loss, and recovery.
8. Evidence boundary: what was inspected, what was tested, and what remains unknown.

When one answer depends on another protocol, repeat this worksheet for that dependency instead of treating the integration as a black box.

Return to the guided paths.