wevest protocol
The wevest protocol is an innovative lending protocol that can return profits to both borrowers and lenders by utilizing 'the Use Right Delegated Interest Rate Structure'. The wevest protocol is a 100% DAO operated by smart contracts, and all processes such as loans, repayments, and risk management are processed without human intervention.
The wevest protocol has the functions to implement a loan with three characteristics: 1) interest free, 2) no maturity, and 3) leverage, and its structure is different from the general lending protocol. The biggest difference in terms of technology can be summarized in three ways: interest rate model, liquidity pool management, and risk management.
The interest rate model is a model that plays a very important role in the lending protocol, and sets how the borrower calculates the interest to be paid. Since the wevest protocol does not receive interest from the borrower, the interest-rate is the profit generated by the leverage loan in the interest rate model. Therefore, the interest rate model in wevest is set as a variable with the profit using the leverage loan.
There are two pools, a liquidity pool and a leverage pool, in wevest, each with a different role. A liquidity pool is a fund that lends to borrowers, and a leverage pool is a fund that collects loans generated by borrowers. The liquidity pool operates statically because its utilization is limited to the lender, but the leverage pool operates dynamically because it sets the fund to a place where high returns can be expected for a certain period of time or when a specific event occurs to generate higher returns.
Risk management can be said to be the most important function in the wevest protocol. Because the wevest protocol allows leverage, it is possible to incur losses if the pool and loan are not properly managed in the crypto market with high market volatility. Wevest minimizes the risk of loss by proactively defending against sudden price fluctuations that occur in the market by using a technology called VARiM.
Architecture
wevest consists of multiple modules and is designed to operate based on states and events. When a wevest user generates a specific event, for example, when making a loan or repaying a specific event, the event is triggered and the business logic programmed in the smart contract is executed to handle the necessary work. Because it is event-based, the logic of the program can be written according to the situation, and when new functions are added later, it can be developed relatively easily.
The important modules that play a key role in the wevest protocol are 1) the pool manager module and 2) the risk manager module, which are responsible for handling loans/repayments and safely managing funds, respectively. The Oracle module is used in risk manager module, greed module, and swap module to bring the price information of the underlying asset and the return rate information of the external protocol. The Token manager module is responsible for issuing, collecting, and incinerating tokens that are proof of the borrower's loan.
Pool management Module
This module is responsible for loan, repayment, and LP management, and contains almost all business logic related to loans. Since this module operates in an event-driven manner, it operates when a user triggers a specific event, such as making a loan, repaying, or participating as a liquidity provider. Pool management manages two pools, a liquidity pool and a leverage pool.
Risk Management Module
The role of the risk management module is to predict market volatility in advance using VARiM technology and to minimize the risk exposure of fund assets. Because it is necessary to continuously monitor the market and measure the potential risk, it is executed at regular time intervals, collects relevant information from Oracle, calculates the volatility of the market using the VARiM model, and when the volatility increases, a procedure to reduce the risk is executed do.
Greed Module
The Greed Module is a module that determines how to manage the funds in the leverage pool to achieve the highest return. The interest income in the wevest protocol is determined by the greed module. The Greed module collects information about various yield farming protocols and staking from oracle, and creates profits by connecting the leverage pool fund to the protocol with the highest profit.
Interest Rate Model
Since the wevest protocol has a use right delegated interest rate model, it has a different type of interest rate model from the general lending protocol. This is because the lender does not receive a fixed interest rate from the borrower, but makes a profit by using the borrower's loan and pays this to the lender.
For this reason, the interest rate model is not the model of the general lending protocol, but the interest rate is the profit of the yield farming protocol used in the wevest protocol. Therefore, in order to maximize the interest rate, it is most important to select a yield protocol with high profitability.
When selecting a yield protocol, the interest rate model selects a yield protocol that has a high rate of return to risk by using the Sharpe Ratio.
The Sharpe Ratio is a number that shows the return to risk. In general, the larger the number, the better the profitability. When Sharpe Ratio is used, it can be said that it is a suitable evaluation tool in a market with high volatility such as crypto because it does not simply evaluate which yield protocol will show an optimized return, but rather against risk.
Risk Management Model
As with all lending protocols, it is very important to safely manage the liquidity pool. The wevest protocol uses a technique called VARiM for the safety of the liquidity pool.
VARiM measures current market volatility with VaR, predicts future volatility, adjusts loan size according to market conditions, adjusts liquidity pool risk exposure, and liquidates part of loan when volatility exceeds a certain level to protect the stability of the debtor and the pool.
For more information on the Risk Management Model, see Advanced Risk Management.
Last updated
Was this helpful?