What Is the Market Risk Index — and How Do You Read It?

The DAI Market Risk Index (MRI) is a composite 0–100 score that aggregates five independent market indicators into a single, continuously updated risk reading. It appears at the top of your dashboard and is designed to answer one question at a glance: what does the current weight of evidence suggest about market-wide risk conditions?

This article explains exactly how the MRI is calculated, what each zone means, and how to interpret it alongside other data on the platform.

Individual indicators each capture one dimension of market behaviour. RSI measures momentum. Volatility measures price dispersion. The Fear & Greed Index measures sentiment. Market regime classification measures trend structure. No single indicator gives you the full picture.

The MRI combines these dimensions into a single reading, weighted by their historical relevance to risk conditions. The result is more stable than any individual indicator and less susceptible to the noise that causes single-indicator readings to whipsaw.

This is the same principle institutional risk desks use when constructing composite risk dashboards — aggregating uncorrelated readings to reduce false positives.

The MRI is calculated from five inputs, each scored on a 0–100 scale where 0 = lowest risk contribution and 100 = highest risk contribution.

Source: DAI's proprietary Fear & Greed calculation, built from CoinGecko market data.

How it maps to risk: The Fear & Greed Index measures collective market sentiment. Extreme greed (high values) historically precedes corrections — participants are overextended, leverage is elevated, and the marginal buyer is exhausted. Extreme fear (low values) historically precedes recoveries — selling pressure is exhausted and prices have overshot to the downside.

Risk mapping: Risk score = 100 − Fear & Greed value

So a Fear & Greed reading of 80 (extreme greed) contributes a risk score of 20 — counterintuitively low. This is intentional: the MRI measures current risk conditions, not directional bias. A greedy market is not necessarily about to fall, but it is operating with less margin for error.

Weight rationale: Sentiment is the single most reliable leading indicator of regime stress. At 30%, it is the largest component.

Source: Average RSI(14) across 20 assets from the DAI heatmap (BTC, ETH, XRP, SOL, BNB, ADA, DOT, AVAX, LINK, MATIC, ALGO, ATOM, LTC, UNI, DOGE, NEAR, FIL, ICP, APT, SHIB).

How it maps to risk: When the average RSI across 20 major assets is elevated (above 60–70), the broad market is overbought on a momentum basis. This does not mean a reversal is imminent, but it does mean the market is extended and more vulnerable to a pullback.

Risk mapping: Risk score = clamp((avgRSI − 30) / 40 × 100)

RSI of 30 → risk score of 0. RSI of 50 → risk score of 50. RSI of 70 → risk score of 100.

Weight rationale: RSI is a reliable momentum measure across multiple assets. Using the average of 20 assets rather than BTC alone reduces single-asset noise.

Source: BTC Bollinger Band width from the DAI market regime detector.

How it maps to risk: Bollinger Band width measures how much price is dispersing relative to its recent average. High band width means large, unpredictable price swings in both directions — a condition that increases the risk of adverse outcomes regardless of direction.

Risk mapping: Risk score = clamp(bbWidth × 400)

A bbWidth of 0.25 (25% price dispersion) maps to a risk score of 100. A bbWidth of 0.05 maps to a risk score of 20.

Weight rationale: Volatility is a direct measure of uncertainty. High volatility environments require smaller position sizes and wider stops — the MRI reflects this by elevating the composite score.

Source: DAI regime classification for BTC, ETH, and XRP, weighted by confidence score.

How it maps to risk: Each regime carries a baseline risk level:

The final regime component is a confidence-weighted average across BTC, ETH, and XRP.

Weight rationale: Regime is a structural indicator — it changes slowly and reflects the underlying market environment rather than short-term fluctuations. At 15%, it provides directional context without dominating the composite.

Source: Average 24-hour price change for BTC and ETH from the DAI heatmap.

How it maps to risk: Strong positive momentum (both BTC and ETH up significantly in 24 hours) suggests the market is in a risk-on state. Strong negative momentum suggests risk-off conditions.

Risk mapping: Risk score = clamp(50 − avgChange × 3)

BTC+ETH average up 10% → risk score of 20. Average down 10% → risk score of 80.

Weight rationale: Short-term momentum is the most volatile component and the least reliable in isolation. At 10%, it adds recency sensitivity without destabilising the composite.

The composite score maps to four zones:

The MRI is designed to never fail silently. If any component API is temporarily unavailable:

• The last known value for that component is reused (indicated by a small notice in the widget)
• If no prior value exists, a neutral score of 50 is used for that component
• The remaining components are renormalized so their weights sum to 100%

This means the MRI always displays a score, even during brief API outages. The stale indicator in the widget tells you when cached data is being used.

The MRI is a context indicator, not a reading. It does not tell you what to do — it tells you what the current weight of evidence suggests about market-wide risk conditions.

Practical applications:

Position sizing: In a High zone, consider reducing position sizes relative to your normal allocation. In a Low zone, the data supports normal or slightly larger allocations. This is not a rule — it is one input.

Confirmation: If you are considering a long position and the MRI is in the Elevated or High zone, the data suggests the risk/reward is less favourable than usual. If the MRI is in the Low zone, the data is more supportive.

Trend context: Combine the MRI with the market regime badge on your dashboard. A Low MRI in a Bull Trend regime is the most supportive combination. A High MRI in a Bear Trend regime is the most cautious combination.

What the MRI cannot tell you:

• The direction of the next price move
• When a correction will occur or how deep it will be
• Whether any specific asset will outperform or underperform
• Anything about fundamental value

The MRI widget on your dashboard includes a 7-day and 30-day historical chart. This trend is more informative than the current reading in isolation — a score of 60 that has been declining from 80 tells a different story than a score of 60 that has been rising from 30.

The hourly snapshots are stored in the DAI database and accumulate over time. The longer the platform has been running, the more historical context the trend chart provides.

The Market Risk Index is a purely observational composite indicator. It aggregates publicly available market data and presents it in a standardised format. It does not constitute investment advice, a buy or sell recommendation, or a prediction of future market conditions. All data is provided for informational purposes only, in compliance with MiCA Article 3.