Silo Finance & B.Protocol Partnership

Proposal Discussion
1

Tl:dr

B.Protocol is excited to offer Silo Finance its novel SmartLTV monitoring system to track Silo Finance markets’ risk levels to reinforce transparency and enable a data-driven decision-making process for users.

The monitor would track the risk levels of each market on Silo Finance and present risk level historical data next to the main risk parameters of each market such as its LTV, current supply, asset volatility, and DEX liquidity.

SmartLTV Formula Recap

Loan-To-Value (LTV) is a pivotal concept in maintaining the equilibrium between risk and accessibility. It’s a measure that ensures that lending platforms can provide loans securely without taking undue risk that might result in the accumulation of bad debt.

B.Protocol introduced the SmartLTV formula — a smart contract that calculates LTV ratios based on objective measurable quantitative risk-related data feeds and a subjective risk appetite, minimizing the human factor in the process.

The risk appetite is determined by the Risk Level Factor (r), a single value that aims to represent a desirable safety margin by accounting for potential deviations from previously observed stats to anticipated values in black swan events. For instance, it considers scenarios where volatility could be three times higher than what was previously recorded.

The formula takes into account the following market parameters:

  • σ is the price volatility between the collateral and debt asset (normalized to the base asset price).
  • β is the liquidation bonus.
  • ℓ is the available dex liquidity with a slippage of β.
  • d is the debt cap of the borrowable asset.
  • r is a risk level factor. The higher the r is, the odds for insolvency increase.

You can find the full whitepaper for the formula here.

Risk Level Index Recap

If the LTV is set, one can isolate the risk factor and use it to compare risk exposure levels of different markets, creating a risk level index.

The Risk Level Index introduces a standard for assessing economic risk in DeFi lending markets. It functions as a benchmark, quantifying risk exposure in lending markets by aggregating diverse market metrics such as DEX liquidity and asset price volatility, together with platform-specific parameters such as liquidation bonus and debt caps, into a single numerical value. This index serves as a comparison tool, allowing users to assess and compare risk levels across different lending markets. Additionally, it provides historical tracking, enabling stakeholders to monitor changes in risk exposure over time. The standardized measurement simplifies risk assessment and historical analysis for a wide range of DeFi lending participants.

You can read more about the risk level index in this post.

SmartLTV Risk Monitor

The SmartLTV formula and the risk level index create a robust yet scalable solution for assessing and comparing risk exposure across different lending markets.

Here are the main sections of the SmartLTV monitor’s dashboard (taken from Morpho’s SmartLTV monitor) -

Overview

The Overview section in the monitor dashboard presents the markets, sorted by risk levels from high to low.

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Risk Levels

This section shows the risk level historical data for each market, as well as the aggregated DEX liquidity and asset price volatility.

The default data shown is calculated based on the set LTV and liquidation bonus parameters set for the market. Users can change the supply to simulate new risk levels.

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The liquidity and volatility data is also presented over the last 180 days and the liquidity is calculated based on a max slippage percentage set by the liquidation bonus

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Data Sources

This section monitors the liquidity and volatility for each market, filtered by the DEXs used as a source of the data fetched for the SmartLTV formula calculations. Users can pick a specific DEX or get an aggregated view of all the DEXs listed. Users can also pick a slippage percentage to be used for the liquidity calculation over time.

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Core partnership mission: Risk parameters monitoring

  • The B.Protocol community will set up and maintain an on-chain data feed that provides key metrics on Silo Finance listed markets (LTV ratio, Current Supply, Liquidity, and Volatility for each market).
  • The risk level for each market will be calculated using B.Protocol’s SmartLTV formula based on the above data feed.
  • The monitor dashboard will also present historical data to track risk level changes according to market conditions.

Timelines

  • The feed and monitor dashboard setup for the Ethereum, Arbitrum, and Llama markets will be completed within a month of agreeing on the terms in this document.

Community engagement

  • The partnership can be publicly announced, and upon demand, we will be happy to attend community events such as Twitter Spaces and AMAs.

Partnership fee package

  • Our yearly feed setup fees are $2k per asset. Due to Silo’s permissionless architecture that results in high numbers of listed markets (currently 85 silos across the 3 markets), and to enable better coverage for Silo’s risk exposure, we propose to:
    • Cover only markets with >$1m on the SmartLTV monitor.
    • Cap the number of monitored markets at 100 markets in total.
    • Set a total payment of $50k/year, to be paid either with Silo’s native token or with a stablecoin.
  • Minimum partnership duration is 1 year, starting from the DAO approval date of this partnership.

References and links to SmartLTV

About B.Protocol

B.Protocol has been building open-source protocols and infrastructure for risk mitigation and assessment for the DeFi ecosystem since 2020. Through our research arm, RiskDAO, and its novel risk framework, we have supported over a dozen DeFi protocols with risk analysis, research, audits, and monitoring. Our Risk Oracle and SmartLTV formula automate the process of setting risk parameters for lending platforms in a transparent way, building the next generation of DeFi risk management infrastructure.

Website, Twitter, Discord, Medium, GitHub

2

Silo is already created to “silo the risk” and minimise bad debt. I’m not sure this product adds anything to the DAO… Especially for 24k per asset per year… There are 19 markets (as per silo.observer) with a TVL of >1M, leading to yearly cost of 456K. I think DAO Treasury funds / Silo revenue can be spent in much better ways.

Edit: misread price in topic, not 456k only 50k

Is there any information on the users/ traffic who are using MorphoBlue Smart Monitor as an example?

4

Thanks for the swift response.

It’s true Silo’s architecture enables isolated risk per market but we believe even those silos could benefit from a transparent risk exposure monitoring as crypto markets dynamics are rapidly changing.

As mentioned in the proposal the pricing is $2k per silo per year (and not as you calculated per month). On top of that we offered a $50k cap for 100 silos to enable better coverage for the platform across its 3 current markets.

5

Ah per year! My mistake, price is quite okay. Do you have feedback from the other communities using the product?

1 Like
6

couple of comments from me
1 - are gearbox, morpho and kinza currently paying B.Protocol for smartTVL monitor product?
2 - as per Silo roadmap 2024 we are going multi chain, and vote approved recently to launch on OP, how much would cost increase to if we were on say 5-6 chains?
3 - is the $2k monitor cost per asset or per asset per silo per chain?
4 - does aave or comp currently have a system like this in place?
5 - would the B.Protocol risk scoring per silo be visible on the Silo UI or only visible on a separate website like link above?
6 - following on from comment above can you provide us with feedback from the other communities using the product?

2 Likes
7

Thanks for the questions and sorry for the delayed response.

I will try to address them one by one:

  1. Morpho and Kinza are currently paying. With Morpho the setup is somewhat different, as it is the users who pay through the vault fees. The engagement with Gearbox was a fully paid risk service that included recommendations of risk parameters to the DAO, and the SmartLTV was used for some of the recommendations.

2 (and 3): The official cost is $2k per asset per chain. If two silos on the same chain have the same collateral and debt asset (e.g. with different risk parameters), then the $2k covers both. Note that in the proposal above we have capped the cost at $50k/year to cover up to 100 different markets (different collateral/ debt/ chain).

  1. Aave and Comp do not use our system but instead pay a hefty yearly fee to risk vendor service providers. It should be noted that in Aave and Compound the DAO is the one who manages the risk. While at Silo, the proposed solution is only to reflect the risk to the user due to the permissionless architecture of the protocol.

  2. Whether Silo wants to put it in the UI or not is up to Silo’s dev team. We will support them if they decide to do so.

  3. The SmartLTV is currently used to manage the biggest user-facing vault on Morpho, and over $200m TVL on Kinza finance. The SmartLTV approach is fairly new, and thus the amount of available feedback is limited. However, before that, B.Protocol through its research arm RiskDAO, used to give full (and pricy) risk management services to lending markets, and prior to that, B.Protocol ran a backstop liquidation protocol with a TVL of $300m at its peak.

It is also important to note that for other platforms such as Kinza and Morpho the SmartLTV monitor is used for the risk managers of the markets (for Morpho this is us), whereas in Silo the users are expected to manage the risk on their own and thus the monitor is aimed to be user-facing to help Silo users take more data-driven decisions in a transparent manner.

Please do not hesitate to come up with more questions.