# Deconstructing strategies before capital is allocated

Shift does not evaluate DeFi strategies as single products.

Every strategy is decomposed into its fundamental exposures. We refer to these exposures as [Building Blocks](https://medium.com/@SHIFT_DeFi/whats-really-inside-your-yield-the-building-blocks-of-defi-risk-a760436a13ca).

A typical DeFi position — for example, providing liquidity to a lending protocol on Ethereum — may appear straightforward. In practice, it contains layered risk across multiple components.

Shift isolates each of these components to prevent hidden fragility.

The three primary Building Blocks are:

* Asset — the token or tokens involved
* Protocol — the smart contract system governing capital flow
* Network — the underlying blockchain infrastructure

This bottom-up decomposition ensures that a strong protocol does not mask a weak asset, and a stable asset does not obscure a fragile governance structure.

Risk is not averaged. It is dissected.

#### Asset-level risk

An asset in DeFi can be a stablecoin, governance token, LP token, wrapped asset, or synthetic derivative.

Each asset is evaluated independently across multiple dimensions:

* Volatility profile and historical drawdowns
* Liquidity depth and market concentration
* Centralization exposure (issuer control, blacklist authority)
* Peg stability mechanisms (for stablecoins)
* Redemption guarantees
* Dependency on collateral models

For example, two stablecoins may both target a $1 peg. One may be fully backed and redeemable; another may rely on algorithmic stabilization. Their risk profiles differ fundamentally.

Shift does not assume asset stability. It evaluates it.

Assets such as USDC and USDT are [treated](https://medium.com/@SHIFT_DeFi/when-stablecoins-arent-so-stable-the-hidden-cracks-in-crypto-s-foundation-20546b52ff4f) as systemic base currencies due to their ecosystem-wide integration. However, they remain subject to monitoring for peg integrity and issuer-level developments.

Other stablecoins under full asset criteria and derivatives are assessed under full asset criteria.

#### Protocol-level risk

Protocols govern how capital is deployed.

Protocol risk includes both technical integrity and economic design.

Technical evaluation includes:

* Smart contract architecture
* Upgradeability mechanisms
* Admin privileges and role concentration
* Proxy structures
* Audit history and coverage depth

Economic evaluation includes:

* Incentive Sustainability
* Oracle Dependency
* Risk parameters configuration
* Governance and Decentralisation review
* Collateral Security and Transparency

A protocol can be technically secure yet economically unstable. Conversely, strong economic design can still be compromised by insecure upgradeability.

Both dimensions must withstand scrutiny.

#### Network-level risk

Every DeFi strategy inherits the characteristics of its underlying blockchain.

Network-level risk includes:

* Validator decentralization
* Historical uptime and stability
* Congestion risk
* Gas spike behavior
* Cross-chain bridge exposure
* Finality guarantees

A well-designed protocol running on a fragile network inherits network fragility.

Shift monitors network-level risk concentration and limits exposure accordingly.

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