# Protocol: Economics Domain Solvency mechanics, liquidation design, capital adequacy, interest rate models, and incentive sustainability. --- ## What This Domain Covers The economics domain evaluates the financial mechanisms that keep a protocol solvent and functional. For lending protocols, this means liquidation design and capital buffers. For DEXes, it means LP incentive sustainability. For bridges, it means relay economics. --- ## L1 Branches (AND-split) | Branch | Gate Question | What It Measures | |--------|--------------|------------------| | **Liquidation Mechanism** | Does the protocol use liquidations to maintain solvency? | Liquidation efficiency, cascade risk, incentive alignment | | **Solvency Buffer** | Does the protocol maintain reserves or safety modules? | Reserve adequacy, drawdown triggers, recapitalisation mechanisms | | **Interest Rate Risk** | Does the protocol use variable interest rate models? | Rate model design, utilisation sensitivity, extreme scenario behaviour | | **Leverage Management** | Does the protocol allow leveraged positions? | Maximum leverage limits, margin call design, cascading liquidation risk | | **Incentive Sustainability** | Does the protocol use token incentives to attract liquidity? | Emission schedule sustainability, mercenary capital risk, value capture | --- ## Example Subscores **Liquidation Mechanism branch (OR-split children):** - Fixed-spread liquidation (Aave, Compound) - Auction-based liquidation (MakerDAO) - Gradual liquidation (Euler, Morpho) Each subtype has specialised subscores measuring the containment quality of that specific liquidation architecture. --- ## Related - [[Welcome]] — All domain templates - [[methodology/Subscores]] — How subscores work - [[methodology/Conditional Logic]] — OR-split mechanics for liquidation subtypes