Remember the story behind The Big Short? Ratings agencies gave AAA ratings to collateralized debt obligations packed with thousands of subprime mortgage bonds rated B, BB, and BBB, bonds Wall Street couldn't sell individually. These "towers" of toxic debt were repackaged into even riskier "CDO-squared" products. When it all collapsed, the ratings agencies’ failures helped trigger the 2008 financial crisis.
DeFi may still be in its infancy but we already have demand for credit ratings as the creation and use of vaults grows faster than risk managers can keep up with.
Credora is building real-time, dynamic risk ratings for DeFi. They've rated over $10 billion across 67 vaults, covering 80% of Morpho's TVL and 100% of Spark's TVL. The ratings work like this: assess the collateral asset, then the lending market setup (oracles, liquidity, liquidation mechanics), then combine everything into a vault-level grade from A to D.
In a new Edge Podcast, RedStone CoFounder Marcin Kazmierczak talks about RedStone’s recent acquisition of Credora, the ratings protocol for DeFi, and the opportunity to build credit ratings for DeFi that don't repeat the mistakes of TradFi.
Gil Santos, Lead Quant at Credora, explains the problem DeFi faces today: transparency of transactions but opacity when it comes to risk. You can see every trade onchain, but you can't tell if a Morpho vault is genuinely safer than another. Most users don't understand the smart contracts or protocol mechanisms. Right now, DeFi purely relies on overcollateralization, meaning liquidation cascades hit equally hard whether you're a sophisticated institution or retail user.
Here's the difference from The Big Short era: Credora's methodology is transparent and published. Anyone can understand how ratings are derived. When Stream Finance blew up with a $100 million hole, Credora's backtesting showed they would've given it a C rating, exactly the kind of early warning The Big Short showed we need.
Much like L2Beat, Credora was initially disliked by some for exposing centralization or shortcomings in yield products. Now since the DeFi blowups in the aftermath of October 10th, more are beginning to appreciate Credora for raising standards.
Bitwise just launched a Morpho vault. More TradFi institutions will surely follow in 2026. And you can bet they’re already demanding ratings.
As stablecoins grow to $1 trillion, Credora should become the infrastructure institutions need to allocate capital safely onchain.
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🔗 Guest Links 🔗
► Credora website: credora.network
► RedStone website: redstone.finance
► Credora on X: x.com/credoranetwork
► RedStone on X: x.com/redstone_defi
► Marcin on X: x.com/MarcinRedStone
► Gil on X: x.com/gil_n_santos_
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DISCLAIMER: Nothing written in The Edge Newsletter or said on The Edge Podcast is a recommendation to buy or sell tokens or securities. This content is for educational and entertainment purposes only. Nothing shared here is financial advice. Any views expressed in our content are solely the opinion of that writer, host, or guest. Always do your own research. DeFi Dad, Nomatic, and guests may have positions in the assets or other matters discussed in this content. DeFi Dad and Nomatic invested in RedStone.
