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Risk Adjusted (deprecated)

This strategy allows you to automatically rebalance the best risk/yield allocation

The risk-adjusted allocation strategy provides a way to earn the best rate at the lowest risk level. The risk-management algorithm takes account of the total assets within a pool, incorporates underlying protocol rate functions and levels of supply and demand, skimming protocols with a bad score/rate mix, and finally determining an allocation that achieves the highest risk-return score possible after the rebalance happens.

It has been developed in collaboration with DeFiScore, a framework for quantifying risk in permissionless lending pools. DeFiScore is a single, consistently comparable value for measuring protocol risk, based on factors including smart contract risk, collateralization, and liquidity. The model outputs a 0โ10 score that represents the level of risk on a specific lending protocol (where 10 is the *upper bound = lowest risk*, and 0 is the *lower bound = highest risk*).

Technical details

With this strategy, we are trying to find the right balance between risk and returns. We are weighting score and apr based on

`k`

parameter. This can be modeled as follows:$max\ q(x) = \sum_{i=0}^{n} \frac{x_i}{tot} * (\frac{\frac{nextRate_i(x_i)}{maxNextRate} + k * \frac{nextScore_i(x_i)}{maxNextScore}}{k + 1})$

where

`n`

is the number of lending protocols used, `x_i`

is the amount (in underlying) allocated in protocol `i`

, `nextRate(x_i)`

is a function which returns the new APR for protocol `i`

after supplying `x_i`

,`nextScore(x_i)`

is a function which returns the new Score for protocol `i`

after supplying `x_i`

amount of underlying, `maxNextRate`

is the highest rate of all implemented protocols after supplying `x_i`

amount, same for `maxNextScore`

with regard to the score, `tot`

is total amount to rebalance, finally `k`

is a coefficient for expressing weights of score and apr (k = 1 means equally weighted, currently k = 2 so score weights twice the APR).$tot=\sum_{i=0}^{n} x_i$

Last modified 1mo ago

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Technical details