How Does the Smart Contract Audit Process Mitigate Valuation Risk?
The smart contract audit process mitigates valuation risk by identifying and fixing security vulnerabilities (bugs, exploits) in the protocol's code. A successful audit increases investor confidence, reducing the risk of a catastrophic loss of locked assets (TVL).
This reduced risk translates to a lower risk premium in the DCF model and a higher overall intrinsic value, as the probability of the protocol's long-term survival increases.
Glossar
Security Vulnerabilities
Exposure ⎊ The inherent vulnerabilities within cryptocurrency, options trading, and financial derivatives stem from a confluence of technological, regulatory, and market-driven factors.
Risk Premium
Premium The Risk Premium embedded within an option's price reflects the extra compensation demanded by the market for taking on the uncertainty associated with future price volatility of the underlying cryptocurrency.
Valuation Risk
Accuracy ⎊ Valuation risk refers to the potential for an asset or derivative position to be valued inaccurately, resulting in misrepresentation of portfolio performance and risk exposure.
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.
Contract Audit Process
Verification ⎊ Contract audit processes within cryptocurrency, options trading, and financial derivatives represent a systematic examination of smart contract code and associated economic models to identify vulnerabilities and ensure alignment with intended functionality.
Smart Contract Audit Process
Audit ⎊ The Smart Contract Audit Process, within cryptocurrency, options trading, and financial derivatives, represents a systematic evaluation of code to identify vulnerabilities and ensure alignment with intended functionality and regulatory requirements.