Second-Order Stress — What Happens After the First Shock
Second-order stress models what happens after the initial shock — the difficulty adjustment lag after a BTC crash, the funding rate flip after a volatility spike, the spread widening during a liquidity crisis.
TL;DR
Second-order stress models what happens after the initial shock — the difficulty adjustment lag after a BTC crash, the funding rate flip after a volatility spike, the spread widening during a liquidity crisis.
Why This Exists
First-order stress answers: "What if BTC drops 30%?" Second-order answers: "What happens next?" Mining difficulty adjusts, funding rates flip, DeFi queues extend. These cascade effects compound the real losses.
How It Works
Stage 1: Apply initial shock
Stage 2: Propagate per-module effects:
BTC Collateral → margin cascade → forced selling
Infrastructure → difficulty lag → unit economics shift
Market Neutral → funding flip → P&L reversal
Stablecoin → withdrawal queue → liquidity freeze
Each produces a score delta that compounds with the first-order shock.
What You See in the Platform
A "Second-Order" toggle on the stress page. Two-line chart: immediate impact vs cascade impact.
Where to Go Next
Read IC Report Anatomy for committee presentation, or Stress Testing for first-order methodology.
Next up
IC Report Anatomy — What Each Section Tells the Committee
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