Feb 3
Smart Yields Optimisation-SYO
OTBalance Staking Optimizer
1 INTRODUCTION
Yield farming is a newer idea than crypto staking, and it relates to a single investor’s capacity to precisely plan and choose which tokens and platforms to lend on. Liquidity pools allow cryptocurrency holders to lend their funds and receive a reward for their efforts.
Yield farming, also known as token farming, has existed since the debut of Compound, the first DeFi lending protocol, in 2020. We now have a variety of DeFi financing platforms for yield farming, each with its own set of advantages.
Cryptocurrency investors can use a loan platform like Compound or Aave, or supply liquidity directly on a DEX (Decentralized Exchanges) like Uniswap or PancakeSwap.
Token farming is a simple procedure in which users deposit tokens on one of these lending platforms and earn an APY as well as the platform’s token, which can then be utilized for yield farming again.
If you choose to use a DEX, you will need to offer a pair of coins based on the liquidity pools available. According to the amount provided, each liquidity provider will earn a share of the pool’s prizes.
The interest rate paid by the borrower, or the users of the liquidity pool in the case of the DEXs, provides yield farmers with passive revenue. Stablecoins produce the most risk-free revenue, and yield farming is considered more trustworthy than crypto trading.
2 RISKS
Prices Volatility
The cryptocurrency market is notorious for its high volatility. While this might pay off handsomely for traders and certain investors, yield farmers may lose money if tokens drop value unexpectedly.
Impermanent Loss
When your money is trapped in a liquidity pool and the token ratio is unequal, you may suffer an impermanent loss.
Impermanent loss, in essence, is a temporary loss of funds that occurs when providing liquidity. The difference between keeping an asset and providing liquidity in that asset is frequently explained. Impermanent loss is most commonly seen in typical liquidity pools where the liquidity provider (LP) is required to deliver both assets in the correct ratio, and one of the assets is more volatile than the other, such as a Uniswap DAI/ETH 50/50 liquidity pool.
3 IN SEARCH OF THE BEST YIELDS
Yield farming necessitates a well-considered investment strategy. It’s not as simple as staking, but it can result in significantly higher payouts of up to 100%.
However, choosing and managing the strategy is not as straightforward as one may think. Sometimes it requires some additional tools and/or instruments to properly manage risks and rewards.
4 SMART YIELDS ANALYTICS — IDEA
In traditional finance, options are a type of derivatives that allows investors to hedge against the volatility of an underlying asset. Thanks to the DeFi revolution, options are now easily available to crypto investors.
The worst-case scenario for yield farmers is the situation when the price drops down, the token becomes less volatile, and the investor may lose most of the invested funds.
One strategy that can be implemented to hedge against the above scenario is buying a put option on one of coins. It lowers the expected profits but gives the possibility of saving the investment in an adverse scenario.
The investor has to choose between many options with different strike prices and maturities. One has also to choose the number of options to buy. There is no holy grail strategy. Everything depends on the investor risk acceptance and one’s expectations regarding the market volatility.
Here is the moment where our AI assistant comes into play.
Based on the investor profile our tools search for the best strategies and present them to the user. Investors can choose the one that best fits one’s risk tolerance. It is an AI lab with the help of which the users can take better decisions.
We use, among others, reinforcement learning in search of the best strategies.
5 HOW IT WORKS
Imagine someone is planning to deposit an equivalent of 10 000 DAI into the ETH-DAI pool.
Take a look at the chart below. The red line represents the DAI value of an investment (not including yields) in the scenario when 100% of the capital is deposited into the pool. The investment value decreases dramatically as the price drops below the initial 2500 standpoint. Theoretically, you can lose all deposited money.
This loss can be reduced by buying put options on ETH.
put option value is calculated with the following equation: max (0, strike price − underlying asset’s price)
In such a case, your possible loss is limited to the price of an option. This scenario is represented by a blue line. 8 000 DAI was deposited to the pool and 2 000 DAI was used to purchase options. As one can see the profit is also reduced.
Strategy pnl can be calculated with the formula:
It is you who decide the risk acceptance, there are many scenarios regarding strike prices, option prices, maturities and capital proportions. Different strategies can be mixed. Some of them are shown below.
If you expect ETH to be very volatile in the time horizon of your investment, the blue strategy seems to be good for you.
On the other hand, if you expect ETH to grow, the green strategy seems to fit your expectations. You hedge against a huge loss, however not sacrificing profits.
Currently, the Risk at Value tool works in our system.
https://otbalance.medium.com/value-at-risk-var-of-crypto-portfolio-cecc19c56a4.
Based on this tool, we will expand to Smart Yields Optimisation — SYO.
6 SUMMARY
Staking Analytics is our solution to limit the risk of your investments. As in the example above. You deposit 10,000 DAI and our system calculates many scenarios regarding strike prices, option prices, different maturities, and the amount of options to hedge. On this basis and the knowledge of the investor risk profile, a machine learning system will suggest you the right strategy to minimise the risk of investment.
Therefore, it is a great tool to control your investment and learn every day from possible strategies.
Tools like this have been available only in investment banking and not available on the crypto market.
7 WHAT WE HAVE NOW — OTBALANCE
We are building an ecosystem for investors. Our vision is to create a comprehensive AI based investors ecosystem for all.
Our system is designed for every level of your trading experience. Some tools are useful for upcoming traders, and others are perfect for professional ones. Everyone can benefit from AI-generated knowledge and professional-grade tools.
What is unique in our product is a technology called — Voice. Thanks to it, a user gets an expert voice explanation of any of his or her open positions based on technical analysis, including specific indicators.
OTBalance Platform Features
- Portfolio Manager capable of connecting to EVM based chains and manage ERC20/ERC721 tokens
- AI Base Risk management solution
- Technical Analyst Assistant — AI tool providing TA analysis for any instrument
- Trading Coach — comprehensive trade analytics (AI based)
- Trades Journal
- DEFI Analytics tools
Based on what we have created so far, we want to allow all crypto users of the world to search for investments and control their portfolios.
Our vision is — AI DEX Ecosystem.
More information about us vision you will find in this article:
https://otbalance.medium.com/otbalance-ai-dex-ecosystem-741c7a2a0ef3
