Innovation 2 : Forward-Looking Risk Management

Figure 3 : Risk Management Comparison

Existing risk management used in DEFI protocols is backward-looking, meaning that the risk management will start after market crash happens. Because it use notional limit risk management. Basic idea of notional limit is to set a threshold value, then check threshold value, if the value is not in boundary, it will trigger a predefined risk management like liquidation. As you can sense, notional limit is not bad, but it is a backward-looking risk management. So it may suffer from serious slippage, and increase of market crash because the risk management do liquidation regardless of asset price in very short time.

VARiM (Volatility Adaptive Risk Management) is a technology to solve the problem of notional limit and safely operate funds according to market volatility. VARiM aims to measure market volatility and manage it in a forward-looking manner.

In short, VARiM is a 1) Forward-looking, 2) Asset Risk Comparison, 3) Intuitive risk management technology.

VARiM initiates a risk management process before market crash happens unlike existing notional limit based risk management. It will measure the market risk at specific time interval using VARiM model. If measured market risk is out-of-boundary, it does a risk management to mitigate potential market risk as well as liquidity control.

Furthermore VARiM model can forecast market risk after n-days. For example it can tell after 5 days, $100,000 will be possible loss with 95% confidence.

VARiM intelligently secure funds from sudden market crash.