Since our founding in 2014, Abra’s “risk management first” culture has been in place and well appreciated at every level and by every function of the organization.
Abra maintains a set of formal risk management policies and procedures detailing risk objectives, constraints, and outlining key systems and controls spanning the entirety of our business, including credit and lending activities. At Abra, risk management is an independent function, and Abra's risk committee maintains veto power over all investment strategies.
- We place our clients’ financial objectives and security first—it guides everything that we do
- We actively seek to achieve the highest standards of compliance based on current regulatory guidance, a necessary effort to preserve the privilege of our clients entrusting us with their assets
- We prioritize maintaining liquidity and generating sustainable yields at all times—we don’t subsidize or pursue unsustainable yields
- We rate all borrowers using our proprietary risk framework— all borrowers are subject to our standard and stringent due diligence or internal rating process.
Enterprise Risk Management Framework
To meet our core tenets of risk management, Abra employs:
- An experienced team of professional compliance, risk, securities, and fraud operations experts from both traditional and digital assets fields of banking, payments, remittance, and fintech
- Complete enterprise risk management infrastructure powering client onboarding (KYC/KYB) and ongoing lifecycle management (KYT) using continuous due diligence, monitoring, review, and adjustments that adequately reflect our industry’s always-changing operating environment
- Comprehensive anti-money laundering (AML) infrastructure including state of the art AI/ML-powered fraud analytics on and off blockchain with a robust suite of programs, policies, procedures, team, and culture dedicated to detecting and preventing fraud.
Risk Management Process
- Controls: risk controls comprise the day-to-day management of the team’s risk appetite and tolerances. Risk limits and other controls reduce breach probability
- Assessment & Measurement: Risk team conducts relevant and objective risk assessments that correspond to the unique characteristic of each risk category
- Monitoring: Risk team monitors and identifies risks against corresponding appetites, tolerances, and limits. If a particular risk appetite, tolerance, or limit breach occurs, the Risk team promptly reviews and reports the breach in accordance with predetermined escalation procedures
- Mitigation: The firm mitigates credit risk stemming from liquidity service providers and counterparties by issuing margin calls to ensure ample collateral coverage, limiting concentration of funds hosted on partner platforms, and availing insurance as prudent.
Liquidity Risk Management
Abra’s loan book is in-kind, meaning that a loan disbursed in a specific cryptocurrency is owed in the same cryptocurrency. We avoid directional and cross-asset exposures in our loan book altogether.
- Conservative liquidity buffers: to ensure sufficient liquidity in unfavorable conditions, Abra sets targets for and holds liquidity reserves in its main assets.
- Intraday Monitoring
- Projections & Forecasting
- Liquidity Stress Analysis: covering both idiosyncratic and market wide scenarios
Credit Risk Management
All counterparties are systematically evaluated and reviewed against key risk factors including credit, market, liquidity, compliance, and duration risk. We look for a diversified client base with net neutral or near net neutral crypto exposure, and avoid those making directional bets on cryptocurrency prices.
- Initial and Ongoing Due Diligence
- Abra collects corporate and personnel KYC/CIP records, in addition to financial statements and trading statements (where applicable), and even interviews counterparty principals, in order to determine our ability to transact with a counterparty, while protecting our rights and complying with regulations.
- We require counterparties to provide periodic updates regarding their business performance, including financial statements. Additionally, our team actively monitors information flows around markets, deals and events that may affect existing and potential counterparties and deals.
- Risk Review and Evaluation:
- Internal risk rating: a consistent and measurable framework by which the Credit team can assess counterparty creditworthiness by using a number of different metrics across 7 or 8 categories. The rating scale is then used as a basis for setting risk limits subject to thresholds set forth based on a preestablished credit risk tolerance.
- In addition, all counterparties are subject to a more in-depth, qualitative credit review which often includes an analysis of each counterparty’s financial statements, historical performance, holdings, strategy, among other relevant factors, all of which is organized by key risk factors including credit, market, liquidity, and compliance risks.
- Limits on Multiple Risk Metrics:
- A counterparty’s internal rating is then used as a basis for setting strict risk limits subject to certain thresholds predicated on approved credit risk tolerance.
- Collateral Management and Stress Test:
- Abra employs a revaluation approach to estimate stress risk impact for each position or asset using effective stress parameters.
- Loan Loss Provisions
- Robust documentation including executed Master Loan Agreement, Term Sheet, and other loan servicing documents.
Concentration Risk Management
Abra’s portfolio is managed to prudent standards of diversification across lending and trading activities at the counterparty, product, and portfolio levels.
We strive to avoid excessive concentration in any single counterparty. In addition to counterparty level exposure limits, we also apply diversification targets that are routinely reevaluated.