Overview

This note details how Clearstar conducts Asset Due Diligence on yield opportunities. It is part of the Capital Allocation Framework and covers the assessment of the underlying asset(s) involved in an opportunity, including their mechanisms, ownership structures, market characteristics, smart contract implementation, and dependencies.

This stage is human-led. Analysts conduct the research directly, with assistance from VALIS submodules where relevant (e.g. on-chain data retrieval, contract analysis). The full VALIS pipeline does not run for Specific DD; it is reserved for General Due Diligence. Findings from VALIS's General DD report may, however, provide useful context and starting points for the analyst's work here.

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Escalation If the analyst identifies a critical finding during Asset DD that materially changes the risk profile of the opportunity (e.g. an unannounced depeg event, a custodian insolvency, or a supply manipulation), the analyst escalates immediately to the senior analyst. The senior analyst determines whether to pause all Specific DD tracks, request additional screening data, or flag the finding for Improvements and Engagement.

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flowchart TD
    A[Opportunity enters Asset DD] --> B[Classify asset type]
    B --> C[Analyst assesses 8 areas]
    C --> D[Each area graded A through F]
    D --> E{Any critical finding?}
    E -->|Yes| F[Escalate to senior analyst]
    E -->|No| G[Compile composite score]
    F --> H[Senior analyst determines action]
    G --> I[Asset DD report produced]
    I --> J["Feeds into APB Risk Rating (A component)"]

    style A fill:#4A90D9,stroke:#2E6BA6,color:#fff
    style E fill:#E8A838,stroke:#B8862D,color:#fff
    style F fill:#D9534F,stroke:#A94442,color:#fff
    style I fill:#5BB85B,stroke:#3D8B3D,color:#fff
    style J fill:#5BB85B,stroke:#3D8B3D,color:#fff

Asset Type Classification

Not all assets carry the same risks. The first step in Asset DD is to classify the asset(s) involved in the opportunity, as this determines which assessment criteria are most relevant and how they should be weighted.

Asset Type Description Key Risk Factors
Stablecoins Assets pegged to a fiat currency or basket (e.g. USDC, DAI, USDe) Depeg risk, collateralisation mechanism, redemption reliability, regulatory exposure, issuer centralisation
Governance tokens Tokens representing voting power or protocol ownership (e.g. UNI, AAVE) Liquidity, concentration of holdings, emission schedule, utility beyond governance
Liquid staking tokens (LSTs) Tokens representing staked positions (e.g. stETH, cbETH) Peg stability to underlying, validator set risk, withdrawal queue mechanics, slashing exposure
Wrapped or bridged assets Assets representing a claim on an asset held on another chain or in custody (e.g. wBTC, wETH) Bridge security, custodian risk, redemption mechanics, proof of reserves
Synthetic assets Assets whose value is derived from an external reference without direct backing (e.g. synthetic USD, synthetic commodities) Oracle dependency, collateralisation ratio, liquidation mechanics, reflexivity risk
RWA-backed tokens Tokens backed by real-world assets (e.g. tokenised treasuries, real estate) Legal enforceability, custodian and trustee risk, redemption mechanics, regulatory jurisdiction, audit frequency
Native chain tokens The native gas or staking token of a blockchain (e.g. ETH, SOL) Price volatility, staking dynamics, inflation schedule, ecosystem dependency

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Multiple assets Many opportunities involve more than one asset (e.g. a liquidity pool pairing a stablecoin with a governance token). In such cases, each asset is assessed individually, and the overall Asset DD report reflects the combined risk profile.

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Assessment Areas

Asset Due Diligence covers eight areas. Each area receives a letter grade (A through F), consistent with the rating scale used in General Due Diligence.

1. Asset Mechanism and Design

This area examines how the asset works at a fundamental level: what it represents, how its value is derived or maintained, and the mechanisms that ensure it functions as intended.

Key questions addressed: