Leverage can be a powerful tool for maximizing returns, but it comes with its own set of risks. Hedge funds, known for their sophisticated strategies, employ robust leverage management frameworks to navigate the complexities of leveraged positions. Here are five tips inspired by my hedge fund practices that can help you manage leverage effectively:

1. Understand Your Position Types: Collateral or Credit Side Risk

   • Collateral Side Risk: When using volatile assets as collateral (e.g., ETH, BTC) and stable assets as margin instruments (Stablecoins like USDC, USDT), understanding the initial Loan-to-Value (LTV) and Liquidation LTV is crucial.

   • Credit Side Risk: When stable assets serve as collateral, and debt is disbursed in volatile assets (e.g., USD as base, ETH as debt), careful consideration of initial LTV and Liquidation LTV is necessary.

2. Know Your Instruments: Repos, Derivatives, and More

   • Be well-versed in a variety of leveraged instruments, including repos, reversed repos on decentralized lending protocols (Aave, Compound, Radiant), and derivatives such as futures and perpetual swaps on both decentralized (dYdX, Aevo, Hyperliquid) and centralized platforms (Binance, OKX).

3. Set Defining Points for Decision-Making

   • Establish clear defining points according to the marginal policy of the platform. Key indicators like VaR (Value at Risk) at 1-week and 24 hours with confidence intervals should guide decisions.

   • For collateral side risk, use VaR 1 week 99% for initial LTV and VaR 24 hours 99% as a risk limit.

   • For credit side risk, leverage VaR 1 week 1% for initial LTV and VaR 24 hours 1% as the risk limit.

4. Calculate Initial LTV and Risk Limits

   • Leverage historical data for Value at Risk (VaR) computation. Employ a non-parametric approach with confidence intervals based on the historical distribution of returns.

   • Portfolio Managers should use the Value at Risk metric to calculate initial LTV, incorporating Liquidation LTV and the appropriate VaR.

5. Portfolio Manager's Role in Decision-Making

   • Acknowledge that the number of parameters affecting LTV/Leverage is vast and may not be fully algorithmized. The Portfolio Manager's expertise, in conjunction with risk limits, should guide the final decision-making process.

   • Base decisions on the robustness of estimates derived from the daily amplitude data, considering returns from High to Low.

Examples

Collateral side risk

Positions are exposed to the collateral side risk when the volatile assets are used as the collateral for the leveraged position (You deposit your coins and take leverage in stablecoins). The typical position is:

• Base asset of the portfolio: ETH

• Long: ETH Deposit on Aave

• Short: USDC Debt on Aave

• Key parameters – initial LTV and Liquidation LTV

The 2 defining points are as follows:

• VaR 1 week 99% – indicator for the initial LTV and cushion to liquidation price

• VaR 24 hours 99% – risk limit indicator for the call to action:

  • Increase collateral up to the current VaR 1 week

  • Decrease leverage up to the current VaR 1 week or fully liquidate

Initial LTV is calculated:

Example:

• ETH – base asset

• USDC – debt asset

• ETH VaR 1 week 99% = -40%

• ETH VaR 24 hours 99% = -20%

• Liquidation LTV = 80%

• Initial LTV = (1-40%)*80% = 48%

• Risk Limit = (1-20%)*80% = 64%

Credit Side Risk. Decentralized lending

Positions are exposed to the Credit side risk when the stable assets are used as the collateral and debt is disbursed in volatile asset for the leveraged position. It means that we have short position in volatile asset. The typical position is:

• Base asset of the portfolio: USD

• Long: USD Deposit on Aave

• Short: ETH Debt on Aave

• Key parameters – initial LTV and Liquidation LTV

The 2 defining points are as follows:

• VaR 1 week 1% – indicator for the initial LTV and cushion to liquidation price

• VaR 24 hours 1% – risk limit indicator for the call to action:

  • Increase collateral up to the current VaR 1 week

  • Decrease leverage up to the current VaR 1 week or fully liquidate

Initial LTV is calculated:

Example:

• USDC – base asset

• ETH – debt asset

• ETH VaR 1 week 1% = +35%

• ETH VaR 24 hours = +15%

• Liquidation LTV = 80%

• Initial LTV = 80%/(1+35%) = 59%

• Risk Limit = 80%/(1+15%) = 69%

Credit Side Risk. Derivatives

Positions are exposed to the Credit side risk also when we us stable asset as a margin for short position in volatile instrument futures or perpetual swap to hedge long spot position in the same asset (or correlated one). The typical position is:

• Base asset of the portfolio: USD

• Long: ETH

• Short: ETH:USDT Perpetual swap with USDT margin

• Key parameters – initial Leverage and Liquidation threshold

The 2 defining points are as follows:

• VaR 1 week 1% – indicator for the initial Leverage and cushion to liquidation price

• VaR 24 hours 1% – risk limit indicator for the call to action:

  • Increase collateral up to the current VaR 1 week

  • Decrease leverage up to the current VaR 1 week or fully liquidate

Initial Leverage is calculated:

Example:

• USD – base asset

• ETH – long spot and short ETHUSDT Perpetual

• ETH VaR 1 week 1% = +35%

• ETH VaR 24 hours = +15%

• Liquidation threshold = 0%

• Initial Leverage = 1/35% = 2.8x (35% from Liquidation)

• Risk Limit = 15% from liquidation

By adopting these hedge fund-inspired tips, you can enhance your leverage management strategy, making more informed decisions and navigating the complexities of leveraged positions effectively. Remember, knowledge, and prudence are key when wielding the power of leverage in financial markets.

In mid-2019, disillusionment with the ICO era reached its zenith. Altcoin valuations had plummeted, with ETH trading below $200. For many, cryptocurrency had become synonymous with scams. Many professionals, who had entered the crypto space lured by the allure of the 2017-2018 bull run's dramatic price surges, were now looking for exits. The once-vibrant Crypto Twitter seemed on a downturn, with a palpable dearth of rational discourse on potential growth sectors.

With my background in corporate banking at a prominent bulge bracket bank and my shift to crypto fueled by conviction, retreat wasn't an option for me. I decided to ground myself in the foundational principles of a blockchain-based economy: the ability for two or more parties to transact without intermediaries, with complete trust and transparency. This line of thought naturally led me to DeFi. I found myself repeatedly poring over the whitepapers of Compound Finance, MakerDAO, Synthetix, Fulcrum, dYdX, UMA, and the like. My exploration led me to the writings of Dan Robinson:

• The Rainbow Network: An Off-Chain Decentralized Synthetics Exchange

• The Yield Protocol: On-Chain Lending With Interest Rate Discovery

The latter was a revelation. While I was savoring a sabbatical—spending cherished moments with family, taking leisurely strolls with my dogs, and indulging in life's pleasures—The Yield Protocol kept me awake. It’s revolutionary, yet stark simplicity and elegance resonated deeply. The excitement was akin to Archimedes' famed "Eureka!" moment. I felt a calling. Embarking on a PhD journey with a focus on Decentralized Finance was the next logical step. University, however, posed its challenges. Many professors struggled to grasp my vision. But, fortuitously, one crypto-curious professor saw potential and championed my cause. Admitted into the program, my research received the green light. I opted to delve into Decentralized swaps. My rationale? The swaps market, being the largest derivatives market, seemed the ideal starting point for seismic shifts in finance. But, as events unfolded, I realized I had misjudged.

In essence, the crypto-curious professor held steadfast to the foundational tenets of economics and finance science: to study, document existing processes, and then convert these observations into quantitative data for analysis and conclusion. In his view, the task of creating a protocol for Ethereum-based smart contracts, especially for decentralized swaps, belonged more to the realm of computer science. It strayed from the analytical approach he held dear. This perspective clashed with my aspirations. I was determined to pioneer the protocol for decentralized swaps on Ethereum, fueled by a thought: "This hasn't been done before; I'll be the one to do it." Admittedly, my ambitions were high, and my confidence unwavering. However, the professor remained unmoved. So, my PhD chapter ended, and I dropped out.

Subsequent to this, I immersed myself in the intricacies of Flash Boys 2.0 and the Etherdelta case, venturing deeper into the vast expanse of blockchain. Come November 2019, the Analysis of Uniswap Markets saw the light of day. My attention was riveted on every piece of content shared by Guillermo Angeris, Charlie Noyes, and Tarun Chitra. In April 2020, I gave a lecture on Decentralized Finance at my alma mater. To satisfy your curiosity, here are the top 10 protocols by TVL from those slides:

It's hard to believe the total was less than $800m, with the largest protocol, MakerDAO, at about $400m.

Following my lecture, a managing partner of a new hedge fund approached me with an offer to helm their nascent DeFi branch. Fast forward to June 2020, Compound Finance unveiled its liquidity incentives and the COMP token, ushering in the era fondly remembered as the DeFi Summer. Merely six months post the disinterested glances of my professors, I found myself articulating visions and strategies to the eager ears of pension fund representatives, institutional allocators, and decision-makers from family offices with over $1bn in AUM. But that chapter of my story deserves its own narration.

Steering an institutional fund, with 8 figures vested in the fledgling DeFi market, comes with its unique challenges. Often, the tools required are yet to be conceptualized. More often, those at the helm of creating these tools lack an in-depth understanding of institutional investors' needs, especially when compared to retail investors or solo traders. The crux here is an unwavering focus on one's existing portfolio. It isn't about chasing the next big thing or 'alpha'. It's about the assets already in play. To put it candidly: "You eat and think about the portfolio, you sleep and think about the portfolio, you have sex and think about the portfolio." Missed external opportunities represent potential, unrealized profits. But any dip in your portfolio translates to tangible losses, glaring at you from your balance sheet. This ethos underscores the very genesis of Mainview.

What is Mainview, and Why is It Needed?

Mainview is an indispensable tool for asset managers, addressing the concern I previously highlighted: the need to be informed about every aspect of your portfolio from all sources at all times. While the market is flooded with news aggregators, none offer protection against an oversight that could cost you millions. It's not merely the scope of source coverage that sets Mainview apart – covering platforms like Twitter, Telegram, Discord, Medium, and Mirror – but its real-time analytical module. Operating 24/7, this module scans new positions and transactions, displaying all relevant news items directly in a feed tailored to a portfolio manager's exposure. Consequently, the feed stays relevant, ensuring that managers are promptly informed about any new position, be it a token or a stake in a DeFi protocol.

The on-chain data presented is aggregated from a variety of sources to ensure comprehensive coverage, including Debank, Snipa Finance, among others. Currently, our focus is on EVM blockchains. However, in the coming months, we plan to integrate other ecosystems, such as Solana and Cosmos. User data is refreshed with every login and on a regular basis. The attributes fall into three categories:

• Tokens stored in the wallet.

• Protocols where a position is held: this could be staking, being part of a liquidity pool, or holding credit on lending platforms like Aave or Compound.

• Historical transactions: if the wallet has interacted with a particular token or protocol, the feed will showcase news related to those protocols.

A notable feature is the ability to customize the news feed by enabling or disabling news items based on specific attribute types. This is especially useful for historical transactions.

News is curated from five primary sources: Twitter, Telegram, Discord, Mirror, and Medium. As of now, there's a brief lag – a few minutes – before the news appears in the feed. We're diligently working to slash this delay to mere seconds.

A few notes on our sources:

Twitter: For every project, we integrate all related existing accounts. For instance, for Uniswap, we've linked both https://twitter.com/Uniswap and https://twitter.com/UniswapFND.

Discord: Given the sheer number of channels in project servers, we currently prioritize key channels, like "announcements". However, based on user feedback, we remain open to incorporating more channels in the future.

Components of Mainview

Login: Users can log in using their digital wallets, ensuring both privacy and convenience. Mainview supports popular wallets like Metamask, Trust Wallet, Coinbase Wallet, and over 100 others via WalletConnect. To verify wallet ownership, we utilize the Ylide SDK, which offers a secure and seamless experience for users and supports multi-accounting. This confirmation process requires two gasless signatures within the wallet.

News Block: The news section is divided into two segments: Feed and Discovery.

Feed: Essentially, this is the smart feed. Each connected wallet gets its distinct feed. Adjacent to each feed is a settings button that allows users to manage projects in that feed, categorized by the attribute types previously mentioned. The Smart Feed aggregates all linked accounts chronologically.

Discovery: Mainview's repository of sources encompasses both DeFi projects and token-associated projects. It also includes those still without tokens, diverse research resources, crypto influencers, and other valuable resources for navigating the crypto landscape. For user convenience in discovering and subscribing to new sources, we continually introduce new source list categories based on varied themes, such as Telegram Research Channels, Liquid Staking, and LSDfi projects.

Post: Apart from its metadata and primary content, each post in the feed has a rationale for its appearance. Every post features a menu (often referred to as the 'meatball menu') where users can utilize the share function to disseminate a specific post, access a link to the original content, or opt to unsubscribe from an individual source or the entire project.

Current Stage and Plans

Mainview has successfully completed its private beta, engaging over 2,000 users who provided overwhelmingly positive feedback. With final improvements implemented, we're excited to announce our public launch.

Our post-launch plans include:

1. Integration of APIs: We'll integrate APIs from centralized exchanges, offering a comprehensive view of both spot and futures positions.

2. Expanded Network and Wallet Support: We are committed to achieving 100% coverage of the portfolio's dollar value by expanding our supported networks and wallets.

3. Enhancements to Discovery: We'll add more sources for projects, influencers, and thematic source lists, ensuring streamlined navigation.

4. Advanced Filters: Users can filter positions based on value, simplifying the process of focusing on significant exposures.

We're thrilled with the positive market feedback and look forward to making Mainview accessible to all. Try it out with a 7-day trial period for each wallet. Our monthly subscription costs $9, while the annual subscription is available at a 50% discount - $54. The majority of proceeds go to data providers and source APIs, as we continuously work to enhance the user experience and add more value to our plans. Share your feedback, stay tuned for updates, and see you there – wishing you boosted returns!

For updates, follow us on Twitter: https://twitter.com/mainview_io

Join the Mainview waitlist: https://app.mainview.io/

Thank you for your support!

Best wishes,

Mainview Intern