Euler Finance

Grant Request for Defishy to Create VaR Simulation Model With Euler Liquidation Health Graph View Implemented in EGP1

Author(s): Charlie Ambrose, Alex Craig, Luke Xie (Founders of Defishy.xyz)

Submission Date: October 10, 2022

Simple Summary

We are requesting a grant to create Value at Risk simulation modeling with the Euler Liquidation Health Graph View that we implemented in eGP1. Value at risk (VaR) is the potential loss in value of a given portfolio/asset given a specified time period and confidence level. VaR modeling helps users understand the potential worst case scenario based on historical and probabilistic parameters. Our VaR modeling will measure Borrowed Capital at Risk and assess how likely it is that, based on current assets and historical metrics, an account’s liquidation health score will drop below 1 or to a place of liquidation. Liquidations, especially from whales, can trigger liquidation cascades, which can result in massive asset price drops and further liquidations–this occurred in May 2022 and was a primary contributor to the market crash. These new Euler modelings will help to protect Euler and Euler users from a repeat of this liquidation cascade scenario.

Abstract

The Defishy team is composed of three members of Dartmouth Blockchain. Our philosophy is to continually provide value to the blockchain ecosystem through shipping useful products and research. The Defishy team consists of three individuals with development, design, and growth experience. We have extensive experience in DeFi, having contributed at Yeti Finance, NEAR, Temple DAO, and more.

Proven Euler Shippers

The team recently completed eGP1 for Euler, which is currently live on Defishy.xyz. The grant led to previously unforeseen insights for Euler users and the Euler team. eGP1 was started on 8/10/22 and finished within its expected timeline on 8/31/22. The current dashboard allows users to view current liquidation health scores across Euler and helps to prevent further liquidation cascades like the one seen in May 2022.

Motivation

There are a number of risk vectors in borrowing and lending protocols, including smart contract risk, price oracle manipulation risk, governance/pool management risk, and market risk (liquidations + bad debt). As protocols like Euler continue to onboard more users, it is increasingly important to equip users with necessary risk-management analytics for healthy activity. Safeguarding users against risk ensures the long-term sustainability of the protocol, as well as an improved user experience (competitive differentiation with other borrowing and lending protocols).

Specification & Implementation

We are requesting a $20k initial grant (all $20k to be paid upon completion of the grant deliverables–-no payment required upfront) and $3.5k recurring on a monthly basis (paid on the first of each subsequent month the Euler community wants the app to be live, starting once the initial grant work is complete) to fund the development of a full data analytics/risk management suite for Euler with the following deliverables:

• VaR equation development for understanding borrowed capital at risk and likelihood of liquidation health score below 1 (including VaR simulation for user-selected time periods)
• Updated UI/UX from eGP1 that includes the ability for users to adjust the time frame for different simulation time periods Integration of current Euler Graph View with VaR simulation modeling
• Advanced filtering mechanics: Ability to filter both graph and table by asset types used for collateral and borrowed position
• Ability to filter by the size of collateral (with the ability to eliminate self-collateralizing positions that will not be liquidated)
• Pop-up breakdown of a wallet’s composition (health score, borrows, and collateral) when hovering over a wallet in the Graph View

The deliverables will be live at app.defishy.xyz/euler.

How long will development take?

We estimate development time to take ~7-9 weeks from the proposal vote going through. Based on feedback from community members, we plan to continue iterating and shipping out new and useful features.

We will ship each deliverable/section when it is ready as opposed to waiting 7-9 weeks to ship everything at once. This will allow users to use the tools sooner as well as allow for more iteration and feedback.

What will the grant payment be used for?

Total upon completion = $20k

• $16.5k (upon completion) - contributor compensation for initial grant deliverable work
• $3.5k (upon completion) - initial storage, database, and app upgrade costs

Total per month = $3.5k

• $2.5k per month - team compensation to maintain app, maintain database, make adjustments, take feedback after set development date is complete, etc
• $1k per month - App Upkeep costs - Database storage (~$250-475/month) - Server hosting (~$120-300/month) - Ethereum nodes (~$100-220/month)

This contributor compensation is not retroactive for any updates we make to the current dashboard from eGP1. It is for our team to cover each member’s time cost to work on the grant over the allotted time frame and will cover design, frontend, backend, inspecting smart contracts, etc.