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 0–10 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).
With this strategy, we are trying to find the right balance between risk and returns. We are weighting score and apr based on
kparameter. This can be modeled as follows:
nis the number of lending protocols used,
x_iis the amount (in underlying) allocated in protocol
nextRate(x_i)is a function which returns the new APR for protocol
nextScore(x_i)is a function which returns the new Score for protocol
x_iamount of underlying,
maxNextRateis the highest rate of all implemented protocols after supplying
x_iamount, same for
maxNextScorewith regard to the score,
totis total amount to rebalance, finally
kis a coefficient for expressing weights of score and apr (k = 1 means equally weighted, currently k = 2 so score weights twice the APR).