Risk Segmentation

Definition ∞ Risk Segmentation is the process of categorizing different types of financial risks into distinct groups based on their characteristics, potential impact, or likelihood. This allows for tailored risk management strategies and more precise resource allocation. It helps institutions understand and mitigate specific exposures effectively. The objective is to optimize risk-adjusted returns.
Context ∞ In decentralized finance (DeFi), risk segmentation is crucial for managing diverse exposures within lending pools and investment strategies. A key discussion involves developing robust methodologies to accurately assess and separate risks associated with various digital assets and smart contract vulnerabilities. Future analytical tools will improve the ability of users and protocols to implement sophisticated risk segmentation.