> ## Documentation Index
> Fetch the complete documentation index at: https://docs.core3.io/llms.txt
> Use this file to discover all available pages before exploring further.

# Probability of Loss (PoL)

> CORE3's unbiased, data-driven risk metric reflecting a project's risk exposure on a scale from 0 (Exceptional) to 100 (Critical risk).

## What is probability of loss (PoL)?

**Probability of Loss (PoL)** is CORE3's unbiased, shared, and data-driven metric designed to reflect a project's risk exposure on a scale from 0 (Exceptional) to 100 (Critical risk). The metric was designed to create a unified risk language on the crypto market, suitable for investors, builders, and institutions.

The outcome is a **probability-based risk indicator** that reflects how exposed an entity is to loss-causing events under current conditions. As a crypto risk metric, PoL standardizes what was previously scattered across disconnected data sources.

The objectives behind Probability of Loss are to:

* Quantify **non-price risk** at the project level
* Standardize loss-risk assessment across various crypto projects
* Reduce information asymmetry between project teams and users
* Support informed decision-making without implying endorsement or safety

<Warning>
  PoL does **not** evaluate expected returns, token price performance, or speculative upside.
</Warning>

## How the probability of loss is calculated

Probability of Loss (PoL) is a risk indicator designed to express the **likelihood of loss** based on structured, multi-dimensional risk analysis.

PoL is derived through a multi-step calculation process that ensures consistency, comparability, and interpretability across different entities.

<Steps>
  <Step title="Calculation score formation" icon="calculator">
    Each project or exchange is evaluated using a dedicated methodology composed of multiple risk metrics. These metrics may include, but are not limited to, security factors, operational risk, transparency, and solvency. For each entity:

    * Individual metrics are **weighted** according to their relative importance.
    * Metrics are **summed and multiplied** based on methodological rules.
    * The result is a **Calculation Score** ranging from **0 to 100**.
  </Step>

  <Step title="Inversion into probability of loss (PoL)" icon="arrows-rotate">
    To express risk in a more intuitive and standardized way, the Calculation Score is **inverted** to produce the Probability of Loss (PoL).

    * **Calculation Score = 100 → PoL = 0** (lowest probability of loss)
    * **Calculation Score = 0 → PoL = 100** (highest probability of loss)

    This inversion ensures that:

    * PoL always increases as risk increases
    * PoL is directly interpretable as a **risk likelihood indicator**, not a performance score
  </Step>

  <Step title="Mapping PoL to crypto asset ratings" icon="ranking-star">
    Each PoL value is mapped to a **rating category**, using predefined ranges. Ratings follow a familiar, credit-style structure to ensure clarity for institutional and regulatory users.

    | Rating Tier      | Meaning                                     |
    | ---------------- | ------------------------------------------- |
    | **AAA / AA / A** | Very low probability of loss                |
    | **BBB / BB / B** | Moderate and increasing probability of loss |
    | **CCC / CC / C** | High probability of loss                    |
    | **DDD / DD / D** | Critical risk levels                        |

    <Tip>
      Ratings are **deterministic outputs** of the PoL range and cannot be influenced manually.
    </Tip>
  </Step>

  <Step title="Confidence levels" icon="signal">
    Ratings are further grouped into **Confidence Levels**, providing a higher-level interpretation layer for users who require fast, categorical assessment.
  </Step>

  <Step title="Interpretation principles" icon="book-open">
    * PoL is **not a price prediction**, performance forecast, or investment recommendation.
    * PoL reflects **risk likelihood**, not certainty.
    * Ratings and confidence levels are **comparative tools**, designed to support decision-making, monitoring, and regulatory oversight.
    * PoL values are updated as new data, disclosures, or validated inputs become available.
  </Step>
</Steps>

## Summary

<Check>
  Probability of Loss (PoL) transforms complex, multi-source risk analysis into a **single, interpretable indicator**, supported by transparent methodologies, standardized ratings, and confidence groupings.
</Check>

This structure allows CORE3 to communicate risk clearly across retail, institutional, and regulatory audiences while maintaining methodological rigor. It is the foundation of CORE3's risk assessment and due diligence capabilities.

<Columns cols={2}>
  <Card title="Project PoL Methodology" icon="flask-vial" href="/project-pol-methodology" cta="View methodology">
    How project risk is assessed across 98 metrics
  </Card>

  <Card title="CEX PoL Methodology" icon="building-columns" href="/cex-pol-methodology" cta="View methodology">
    How exchange risk is assessed across security, solvency, transparency
  </Card>
</Columns>