VaR Oracles
The Core of RAVA: Turning Messy Data into Clean Risk Parameters
RAVA's VaR (Value at Risk) Oracles are the foundation of everything we do. They take messy real-world data about tokenized assets and output two clean, actionable risk parameters: haircuts and discounts.
The Problem We Solve
Tokenized assets come with messy, inconsistent data:
- Redemption schedules:Monthly? Quarterly? With notice periods?
- Gating provisions:Can the fund defer 50% of redemptions? 90%?
- NAV lag:Updated daily? Monthly? Quarterly?
- Legal complexity:How many layers between you and the underlying assets?
- Liquidity constraints:Can you exit in a day? A month? A year?
Traditional systems either ignore this complexity (dangerous) or refuse to work with these assets entirely (limiting).
What VaR Oracles Output
RAVA's VaR Oracles process all this messy data and output two clean values:
1. Haircut
Used for: Collateral valuation during clearing
Formula: Collateral Value = Market Value × (1 − Haircut)
The haircut is always applied as part of clearing. It determines how much margin must be posted and how much exposure can be safely supported during the settlement period.
2. Discount
Used for: Execution pricing if settlement fails
Formula: Execution Price = Market Value × (1 − Discount)
The discount is NOT applied upfront. It only becomes relevant if settlement fails and the clearing system must replace, finance, or exit the position.
The T+2 Token Example
For a T+2 token, the haircut is always applied as part of clearing because even a two-day settlement window creates price, delivery, and operational risk. The haircut determines how much margin must be posted and how much exposure can be safely supported during the settlement period.
The discount, by contrast, is not applied upfront and only becomes relevant if settlement fails and the clearing system must replace, finance, or exit the position before delivery. In normal conditions no discount is realized, but the haircut exists to ensure that if something goes wrong during the T+2 window, losses are absorbed without breaking settlement.
Normal case: Settlement succeeds, margin is returned, no discount is realized.
Failure case: Settlement fails, position exits at discount, margin absorbs the loss.
How the Oracle Works
The VaR Oracle computes risk using a two-component model:
Haircut = S + D(t)
Discount = S + D(t) + E
Where:
- S = Static Component (structural factors that cannot change)
- D(t) = Dynamic Component (market factors that update continuously)
- E = Execution Costs (market impact, adverse selection, slippage)
Static Component (S)
Structural characteristics of the asset itself:
- Legal unwind complexity
- Asset structure layers (Master fund → Feeder → LP)
- Manager quality and track record
- Underlying asset liquidity
- Embedded leverage
These factors are locked:they cannot be changed or hedged.
Dynamic Component (D(t))
Market-wide factors that respond to tradeable signals:
- Credit spreads (CDX HY Index)
- Risk-free rate (SOFR / UST Futures)
- Market volatility (VIX Index)
- Liquidity premium (HYG / LQD Spread)
- Equity market beta (S&P 500)
These factors can be hedged through liquid derivatives markets.
Execution Costs (E)
Additional costs incurred during forced liquidation:
- Market impact
- Time-to-exit risk
- Adverse selection
- Slippage
Only applies to the discount, not the haircut.
Haircuts and Discounts by Asset Class
Different asset classes require different haircuts and discounts based on their liquidity and exit mechanics:
| Asset Class | Typical Haircut | Typical Discount | Gap (Execution Costs) |
|---|---|---|---|
| Treasuries | 1-3% | 2-5% | 1-2% |
| Infrastructure | 8-12% | 12-18% | 4-6% |
| Private Credit | 10-15% | 15-25% | 5-10% |
| Real Estate / PE | 15-25% | 25-40% | 10-15% |
The gap between haircut and discount widens as liquidity decreases.
Why This Matters
Before RAVA: Protocols either ignore liquidity risk (dangerous) or refuse to accept illiquid assets (limiting). Each protocol builds its own internal risk logic, creating fragmentation and inconsistent leverage.
With RAVA: All protocols reference the same VaR Oracle outputs. Assets become marginable because risk is quantified. Time-to-cash uncertainty gets priced, not ignored.
The VaR Oracle is the infrastructure layer that makes everything else possible.