How to assess and manage the risk in DeFi?

Transcript

And today I will explain you how do I assess and how do I manage the risks within defy. So as you know defy uh it's not a matter of when if you will use money lose money sorry but when and in this lecture I will present you a framework uh to assess the risk at each level. So a strategy compose the strategy itself, the assets, the protocols that we are using and of course the blockchain relies on. I only have 30 minutes usually I give this kind of lecture for a few weeks because you know we have to analyze and to understand how all the protocols and how all the asset works.

So I will show you the big picture a big overview and uh for the one who are interested into more details you can ask me questions after or you can contact me also I can share some documents and some excess spreadsheet that I'm using for my risk management. So for who is this presentation uh if you want to deploy strategy in defy but using uh different protocols of course if you only wants to deposit funds into a if you wants to give your funds to a curator or hedge funds manager or whatever you don't really care if you're a pure DJ and you just wants to to ape in any kind of strategy that you see but if you want to level up your defy

strategies your defy y the way you manage your money then this presentation is done for you. But um before to start, just a small mathematical reminder. It's pointless if you put all your money into a for example. So 96% of your capital and you're going to make 5% per year and you just say, "Okay, I want to just risk 4% of my capital into a more risky strategy that can yield, for example, 20%." Well, it doesn't make sense because if you do this, you will just end up making uh 0.6% 6% more per year while you are risking 4%. So you always have to think this does the risk worth uh the reward worth the risk. So personally I'm not using a or I'm using

it for a very specific uh purpose. It's where I borrow money for against my rap BTC but I don't use a to generate yield. I prefer to invest in different strategies. Many strategies we're going to speak about a bit later which are a bit uh with a higher risk but I manage my risk in a way that uh it's it is worth the the risk that I'm taking and in average since 2022 with stable coins I have done around 22% of yield per year. I don't speak about the performance of the portfolio. Of course with ETH and so on it goes up and down but pure revenue.

My name is Pascal Talida. Uh I work with a free project Javis network. We do stable coins. We do onchain ethics. We are mainly on base 70 free capital. It's a D5 fund in Luxmbbour where for investors we are managing Bitcoin, ETH, USDC and also Euro stable coins from where we do Y strategy. And I also work with Alira which is a French school and for ALA actually we have developed the first French uh uh lesson for DeFi which received a certification from the French administration. So today in France actually you can follow lesson and to receive the equivalent of a diploma in decentralized finance.

So DeFi for the one who were there in 2020 you may remember yam. Finance it was very easy. It was for retail and it was basically a play playground. We were just depositing money into a liquidity pool. We are making super high APR and the only things that we had to be afraid of was a hack. But that's all. It was the only things that we had to do. Today of course DeFi became a very complex fullyfledged financial ecosystem and who says financial ecosystem says financial products derivative insurance and so on. And now it's actually more complicated to uh to use defy if we want of course to go a bit out of the a and so on. And this is why I wanted to do this lecture today. And when I mean the risk I don't

mean about the risk of a hack. Of course there is a risk of a hack every time. But today we won't speak about the risk of hack on a protocol. It's not a technical presentation. I will only speak about the financial aspect of the risk management. And as I said before, you have many different different strategies which are on the spectrum from the lowrisk strategy like staking HH on Lido to a more risky strategy like doing some looping with PT and on Morpho or to do some delta neutral. And the idea here is how we can manage the risk if we only want strategy which are a bit higher risk and a bit more complicated but to don't take too much risk. So we are sure that at the end of the year we uh we finish in profit. So first let me uh

walk through the general principle of the framework. So the first thing you have to do in your head is to divide a strategy into several components. Me I'm using four components. So let's take an example of a very basic strategy. you lend USDC on a so here lending it's a strategy when you lend money we're going to go over it after don't worry I will now just just a quick introduction uh the strategy itself has many different subcomponents for example the risk of lending what is it the execution of the of the lending strategy and so on then the asset the USDC it carries its own risk the protocol we use here a also the blockchain of course we are there then the second principle is that we have to

create benchmark. So me I'm using from A to F. We're going to go over it after. So of course A will be the less risky strategy. B will be the lowrisk strategy and all the way down to F. So we need to create those benchmark to classify the strategy that we want to do. So we know uh what is the position sizing that we are okay to do. Then uh like any uh people who are experienced even if you have the experience you always need to have a decision tree or a check note you know pilots they they have flew thousands of hours but yet they still have to do the checklist before flying the plane. So it's the same for me the same for you me it happens sometimes that I'm tired if I don't check my checklist I can make mistakes I have

made mistakes a few weeks ago even though I'm I'm I'm used to because I was too uh too much in a hurry to do something. So do checklist, do a decision tree. It will help you to um to respect the framework that you have uh uh put simulate track and monitor and report. So I know this is very bothering but you have to know that if you want to again do very simple strategy in defy deposit money you have basically nothing to do you just deposit your money few years after you come back your money is still here you have made money and that's all it's not time consuming. If you just buy a pit on Pendle is the same. You come back three months after and the money hopefully is still here.

But again, if you want to deploy more strategies, it's actually a full-time job. So, you need to track what you do. I have Excel spreadsheet that, as I said, I can share with you. So, you can just send me a message on LinkedIn, Twitter or whatever. And uh I can send you my tools. There are also videos that explain how I'm using them. It's in French. So for the people who are interested and who speaks English, I will do a video in English but it's not ready yet. Uh so yeah just contact me and what I do with those Excel spreadsheets. So I'm tracking everything. For example, if I take a loan, I write how much I have borrowed.

So I know I can track how much I have to pay uh interest. Every time I do a swap, I write it all the strategy, everything. So I know every time what I'm doing, how much I have invested, how much I have paid and so on and so on. Secure your assets the proper way. I won't go into detail here because it's not the point of the lecture. But uh if you really want to be serious about the way you secure your assets, don't just use a ledger. You have to learn how to use safe plus a ledger. You have to use a Rabi because Rabi can help you to simulate transaction to see whether or not the website you're using is legitimate and some tools like Den. I like Den because it's basically a tool when you use Guzi safe which helps you to reproduce transaction that you have

done in the past. It's super useful. For example, if every week you have to claim some rewards, you have nothing to do. You go on on then, you check your claiming transaction up, you execute it, and that's all. It avoid it allows you to avoid mistakes and and so and so on. And of course, you have to do your homework when you are a defi investor. Again, if you really want to be fully into it, but you have to do research or you have to use chip. I'm using it a lot to do some research. When I don't know stable coins, for example, I use chip to gather the best source on internet and then I go But I go digger. I dig I dig uh more. Uh so for example, I go on the git book on the documentation of the project. I also go in their discord. I

ask questions. If there is a red flag, I stay away and so and so on. And then here, I don't know from where you are, but me, I'm living in Euro zone. So this year has been very challenging in terms of yield because most of my assets are in USD and of course I'm losing money because uh this year dollar is up 17% and I didn't make 17% with my USD so far this year. So you have to learn how to manage your ethics risk and this also I can speak about it if we have a bit of time uh at the end of the lecture. Okay. So the components as I said I like to divide strategy into different components. So here I gave some example of some strategies. Uh so you have again the assets the strategy the protocol and the network. So this is how I um make my

analysis of the framework I'm using. So for the asset I will look into the access. How can I access this asset? If I can buy it, if I can borrow it, the design of the assets and the admin key. So access is for example liquidity. So remember that you always have to wonder from where can I get this this asset? You can get it from the primary market, you can get it for the secondary market. What is primary market? So for example, for USDC, you can get it from circle from another token. For example, USDO from open dollar if you know it. You can get it for open dollar but you need to pass a KYC. So the access is not that easy. So you have to go for for USDC and for USDO into secondary market.

Secondary market are basically dexes. But every time you want to to acquire this uh assets you need to make simulation. You need to check where the liquidity is the best. You need to pay attention to the price impact slipage and so on. This is what I'm I'm I'm doing. So for example, I'm doing a lot of strategy with something called C token. you know it's a token that has an exchange rate and they grow in value over time at each block. Well, the problem of C token is that most of them they are illquid onchain. So you first need to acquire the main token then you have to to wrap it into the C token but sometimes it's not the case. Sometimes the C token has um liquidity on secondary market but you have to pay attention that the liquidity on secondary market follows a peg. I will

show you a chart after where there was a problem few weeks ago with one C token that many people used and people I don't know if they realized but they have lost millions and I will show you why and how. So yeah I I check all of these regulation of course if the asset can be held without restriction. Then the design I'm wondering okay what is this asset about? Is it a tokenized asset? Is it a synthetic asset? Uh is it again a C token a token a vault token whatever. So um if it's a tokenized asset I I do some analysis. uh is it a cash and short for example this is the case for USDC is there a counterparty risk so the counterparty risk is if you have an asset which is collateralized by something you have to know if there is a

risk that this collateral disappear or this collateral cannot be redeemed and this could be a big problem so of course for USDC the example I have taken there is almost no risk but every time you want to use a new asset a new stable coin you really have to make this analysis to understand what is the collateral and so on transparency of course for a tokeniz As I said, USDC they have monthly independent audit collateral managed by Black Rockck. So in terms of risk here, it's is easy. And then I'm checking the minting and redoption system. Who has the rights to mint? Who has the right to redeem? So this is the hardest things to assess because it's rarely in the documentation. And unless you go to check the smart contract, uh it's not very easy to do. So the best if you don't see in the documentation is to ask

on the discord who has a right what is the process of minting and redemption because again this could be part of the risk admin key again who has a minting right uh is is there a possibility to blacklist your address and so on. So those are all the thing I'm checking every time I choose a new asset because I'm not doing strategy only with USDC I'm using a lot of different stable coins and I want to know if the stable coin is legitimate or not. So here I have made the list of all the the risk that I'm checking. Uh so I let you take a screenshot because I can't go over everything. But basically every time I try to classify what is a stable coin or the assets and then I check uh all the risk those are all the risk that I have

identified um for this I will sell I think the presentation will be available to to download. So so for example uh last um it was just end of June. So this is a stable coin co called USDO. It's done by open dollar and like many stable coins is a stable coin that allows to earn the yield of the collateral. The collateral being uh bonds. But there is a trick. So first when you check the way it works, they don't do it themselves. So they buy tokenized bonds from other projects. So it's other project who are doing the tokenization and also they are using they're doing themselves the the the tokenization of some bonds. So when you check the collateral the

counterparty risk you know that you there is 30% of risk held by this company open dollar. So then either we trust them or no and then the rest is managed by other people. But the the problem for this asset was different. So this is the C token which means that it's a version that does not rebase. So you still make like 4% per year but it's because there is an exchange rate and this in blue it's the exchange rate. So at each block the price of the CUSDO is supposed to increase but uler so a money market has launched a strategy where people can deposit CUSDO and borrow USDC against it. So we can do some looping you know looping is the the leverage basically. So you you borrow USDC you

buy more CUSDO then you borrow USDC and so on and by doing this you can make 10 20 50%. And actually here the yield was 50%. But the problem of Uler is that they uh they they don't check what is the price of the CSDO because the price was very far from the the the exchange rate. So many people did this strategy and they bought the CSU at this price this price this price this price while actually the real price was there. So they were thinking they were making 50% per year and it's true they made 50% per year on their investment but the premise is that they bought the stable coin super high so they lost money and this chart is not isolated. There are many many C token where you think you make a good deal you buy them on chain but you

don't check if the exchange rate is too much different from the from the market price. So before doing looping on a C token on a PT or whatever you always have to double check if the exchange rate is the same as the market price. Most of the time usually the market price is below the exchange rate. It's the case for rap st if as you know it's better to buy rap stick if rather than staking but for some token it's not the case and here the strategy of drew millions into their vault. I think it was 50 or 60 millions. So for sure many people uh acquired USDO in those areas and then when the strategy finished it was there actually. So you can see the end of the strategy it was there where people exited the strategy. So they sold back the CSDO and they sold basically

there and some people go there. So they actually lost money. So this is why you have to check the way the asset works. Then you have the strategy. So when you lend money the the first risk is the collateral. So remember that when you lend money you take some guarantee the collateral. If the collateral is bad, if the collateral is illquid, there could be a problem during the liquidation. So you have to pay attention to it. So you have to understand how the protocol works. So a is easy. It is cured by a DAO and the DAO is advised by a service provider. So usually on a you don't really have to think too much about it.

But if you use uler, if you use Morpho, they have a different approach. Morpho for example, it's pure defy. They let anyone launch any market with any collateral with any oracle. So you actually have to do your homework before you use Moro when you want to lend money. So of course on Moro you you you use curator. Curator are people who are basically like fun manager. you give them your USDC and they will lend your USDC to different markets and you trust that they will do a good job for uh their risk management but yet you can't trust blindly when you give money to a curator you have to check what is the creator doing with your money so you have to check against which collateral they lend your money so you really have to pay attention to the collateral to

know if you are uh willing to take the risk or not faulty liquidation so of course you only have to use money market which are battle tested I know it's very sexy when you have a new money market with high yield and so on but you don't know how their liquidation works if they are liquidators at all most of the time when a protocol is launched u it's a team itself who is running the liquidation boats but personally I prefer to go using a very high and very battle tested stress tested uh money money market Oracle so for uh for a it's not complicated it's only chain link or they only use chain link this is not for necessarily something good it's good to have sometimes uh fall back solution but in that case there is no problem at all

but again when you use a money market you always have to check the oracle which one they are using and if you are okay with it liquidity a as mark said it's the only place on earth when you can withdraw $1 billion just like that so when you lend money you remember that someone will take your money and will do something is something else with that if they don't reimburse you can't get back your money so you have to lend your money in market which are very liquid and if they are utilized at 100% yes you will make maybe a lot of money because the interest rate will go higher but maybe you won't be able to get back your money so this is the thing I'm checking if I have to lend money to a money market I'm checking all of this but the

thing also is that you don't check it once you check it when you start the strategy but then you have to monitor and if you see that at some point the liquidity is drying out if you see that the liquidity of the collateral is getting worse then you have to take action so how to monitor professional they're using automated tools like hypernative and so on. If you are just a retail but just once per day you can check it doesn't take that much time actually uh the the the state of all those components then there is the execution so for lending execution is super easy you just deposit and and then you withdraw but execution is not always easy as I show before with the CUSDO if you do looping you have to pay attention to the price impact I advise you to don't use automated looping strategy

oner and so on because they they don't um execute the strategy is the best way. It's better to do the loop yourself. Me, I'm doing them myself. Uh when you delta neutral strategy, which is a very complex strategy, I mean it's easy to do, easy to understand, but it's hard to do. So the execution here is key. So sometimes execution of a strategy is very complicated. Here again, depositing and withdrawing money is not very um complicated. Uh here for example, in the execution there are two example, two strategy that are different. So the the second one I like it because it shows a stable coin called Mmov. Mmov maybe it's a stable coin you never heard about because it's not really a stable coin. It's when you deposit in a fund which is called MEV Capital. So it's a fund and they run

onchain strategy and you can invest in this fund in a platform called Midas.App and when you invest in the fund you receive a token called MME. So MME is basically the tokenization of your investment and it is supposed to only grow in value if of course the strategy run by ME capital are profitable and they don't lose money. But the cool thing is that MV Capital is raising money. So the way they do they basically launched a PT on Pendle. So you can actually uh uh earn fixed fixed yield by buying the PT of MME and right now I think it was something like 9% or something like that. And then you can do looping. So you can then borrow USDC buy back buy back MME and why I liked um uh why I like this strategy is because to

buy MME there is no price impact. You directly deposit the USDC into the smart contract and it means the MME at the exchange rate. So in terms of execution this strategy is perfect. The only price impact we have is when you buy the PT but as you know PT when you they use a highly concentrated pool. So the price impact is actually very limited when the liquidity is high. And here the liquidity is not that low. So this is a strategy I'm running for example. And again I like it because the execution is very easy. There is no price impact. On the other side you have this strategy which is way more complicated because you have two price impact to take uh um into consideration. If you want to run this strategy which currently pays around 18%. You first have to acquire the CUSDO and I showed you the the chart

before. It's very volatile. You cannot access CSDO on the primary market if you are not KYC by openen which I I'm sure it's the case for most of the people. So you always need to go to the secondary market. So you have to pay attention to the chart I showed before. You have before to run into strategy to check if the price on secondary market is the same as the exchange rate and then you have the price impact on the PT. So this strategy even though the the reward is higher we may think it's more risky. Actually no in the exection side this strategy is fairly easy on the exection side the other strategy has a bit more challenge then the thing that many people don't pay attention to it's the yield it's part also the risk from where comes the y who pays the yield how long

the y will be paid so for example there I will show you first but for a we know that the y is organic it's not incentivized it's just market driven the token but here it's easy it's paid in USDC it's paid in kind but if it's paid In another token you have to check the liquidity of the token and how this token works and so on distribution but here it's per block but you know sometimes distribution is for one week. So for example sometimes people see a pool in order it's a Tuesday evening a super I will go into it there is like 20% they ape and because the rewards are paid from Wednesday to Wednesday and then the the day after you wake up you have 5% APR basically you have lost time you have lost gas and so on. So you have

to always to think okay how long the distribution will last and so on and of course the duration because again sometimes it's very slow. So we can check two strategies which um um which are not interesting. So even though this one pays 568% we have to understand from where the y comes. So there is a small um uh stars here. So by checking the stars we see that actually the yield is also paid in uler token and in turtle points but it's very small. It's like 2 3%. So from where comes the 568% well if we check is because right now when I took this screenshot the pool is highly utilized which means that there are many people borrowing USDT. So by depositing USDT and then looping to borrow USDC we

make a lot of money but we know that this will just last few minutes maybe few hours. So this is not interesting. And this one the the Y was very high a few weeks ago. It was like 50%. But the problem here is that it is paid in um in a token called usual which has a very big down pressure. So if you start this strategy you will basically do looping. So you will buy USD0 plus+ then you will borrow USDO and you do this. But the problem is that because the usual token goes down, the yield of the USD0++ goes down. And now we only got 13% which is okay for some people but when you enter in the strategy and it it's a 50% yield and you buy US++ which also lost value

this is very risky. So again if you don't question yourself from where comes the yield and what can go wrong with this yield uh you you are missing some some question marks. So again another uh list of all the strategy that I have identified from where comes the yield and all the risks u that are identified. So uh again I can't go over everything but then the the the component of the protocol. So first thing is the code bis I will go over it because I don't think that we have a lot of technical people here but uh you have many things to check if you really want to check a bit the code of the protocol is it audited is it tested is it

formally verified uh is there a bug bounty in place is the code immutable and so on and so on the design you have to understand the design of the protocol so for example a use general pool but they also have isolated market so you have to check which one is being used when you lend your USDC the liquidation system in place in a the oracle and so on and so on. So you have to understand the of course the protocol and to assess if there is um some points that are that could be risky or not. The dependencies some protocols are dependent on other protocols. So the protocol could be very good but if they have a dependency on a weaker protocol then it can go bad. They can also have inherited bad debt from the past. If the protocol is battle tested also uh it's true that when you

have a high TVL for a very long period it means that it's safe. Why? Because you can be sure that many people in the world try to hack it. When you have Pendle with $1 billion, when you have a with 20 or $40 billion, for sure everybody in the world tried to hack them, try to steal their money, yet they didn't succeed. Maybe they will at some point, hopefully no, but it's very good when you see a high TVL for a very long period. It's been that many people tried to hack, but they didn't succeed. So, this is a very good point. Then the governance you have to check if the governance can change some parameters that can of course um impact your strategy. Is there some insurance in place in case something goes wrong? Do they have a good treasury and so on? And

the last component of course it's the blockchain. So this I won't go into details but basically you know that some blockchains are more risky than others. Layer two are more risky than layer one and so on and so on. Then you have to create a benchmark and not so after you have decomposed all your strategy into all those different components that you have check all those different components then we need to give a note to know how much money we should put in and whether we should or not. So for example me I'm using this system from A to D where I classify strategy. So by default for me when I lend money I say that it's low risk. I don't say that lending money is low risk on every protocol. I say by default when you lend money it's not considered as a super risky strategy but of course if I

lend money on a or I lend money on whatever new pancake lending market whatever I mean I don't take the example of pancake swap it could be more risky so this is my default uh benchmark and then what I will do I will attribute points to each components so for example uh I will give plus one or minus one to different components so if we take the example of the lending so as I said lending what we have to Check. We have to check the collateral, the liquidation, the oracle, and the liquidity. Well, on a it's good everywhere. The collateral is high quality, so plus one. The liquidation is very good because it has been battle tested. Plus one. The oracle is chain link al. The liquidity is awesome. So, another plus one. So, the maximum to get

four points and a got four points on the lensing site. So, if it's four points, it stays in my category B. If it has less points, I go down and I downgrade the note of the strategy. So sometimes if I land I mean I don't land again but it's an example. If I land on a protocol where it's not battle tested the oracle is not chain link and they use some onchain oracle and so on the liquidity is not so so if I want to do it maybe I will degrade it to D and it's important for me because D it means that I cannot put so much money into it in B I can put uh way more money. So it's what I do and for example for two strategy uh I will give notes uh to each component. So USDC form is high quality lending on a it's B

a B manet it's a low risk it's C because it's newer than A but since they already had a hack I assume that they have poured a lot of money and resources into the auditing of their new code and so on psdo I consider that it's a D and so and so on. So of course this notation system is very um how to say it's personal like maybe some people they will feel that USD CSDO is maybe less risky. So when I say that I give you a framework then you have to adapt it to your own views. Then I take the weakest point because each strategy weakest point is actually its weakest point. So here this strategy can be up if there is a problem on this one on this one on this one. But

which is the weakest point for me it's USDO here it's basically the lending. So the strategy here has a note of B this strategy has a not of D. Then what I do with all those letter I decide the capital allocation. So again this is very personal. So for example strategy A I can put 100%. So strategy A what is it for me taking on a staking on Lido holding bonds and so on. Then there is a B holding tokenized bonds lending and so on all the way down to the letter F. And basically if you run a risky strategy the idea is to don't overpass 5% of your capital or 2% of your capital. But then remember the first things I have told you before. If you want to be

diversified and you put a lot of money into a strategy which is less risky. Let's say you put 90% of your capital here and you just put 10% of your capital in more risky strategy. Maybe it doesn't worth the risk because again if you make 20% but just with 10% of your capital the performance of your overall capital will be very small. So if you wants to uh allocate funds to different strategy, my advice is actually to don't put too much money in low risk uh so to say big big capital in lower strategy, more capital in in lower risk higher strategy but to be a bit more balanced.

So the the impact of the rewards here can be bigger on your capital. uh then also you have to estimate the percentage of loss because it's not because the strategy is risky but if something goes wrong you will lose everything. So for example uh if you do some looping you you have to know what is if something goes wrong if you are liquidated what will be the the amount of money you're going to lose but here you will lose the penalty fee. So you have to calculate how much penalty fee you're going to pay and of course if there is for example a DPEG of the asset that you use for collateral and if the DPEG is 10% which is already very big how much you will lose. So so again it's not because you put this is an example for $10,000. If you put $10,000 in a PT

and you do looping if there is a DPEG of 10% you will lose $700 plus 2.3K. So almost 3K and if there is no problem but you are liquidated you will you will lose around 2.3K. So this is the thing you have to pay attention to. It's not um am I willing to pay to to lose 10K. Of course if there is a hack you lose your 10K but again this is different story here. The financial risk is the DPEG or the liquidation. How much you will lose if there is a problem. So if the maximum I can lose for 10K is 2.3K. I will think maybe I can actually pour more money into the strategy because what I care about is the maximum risk I'm taking not the risk against the 10K investment. So maybe in this strategy if I'm okay to lose 20K, it's a lot maybe I

will I will start my strategy with 100K instead of just 10K because many people think ah if I have 100K of capital I will just put 10K which is 10% of my capital but again it's maybe not the good approach because if you lose money you will lose 2% of your capital but if you are willing to lose for example 5% of your capital then you can maybe double your position. So you have to think about this what is the potential loss that you can do. Some potential loss also are smaller than what you may think. For example, a strategy I really like. I buy a PT, but I don't feel comfortable with a PT. Okay, I don't feel comfortable with the PT. So, what I'm doing, uh, I'm checking if I can borrow money against it. When you borrow money, it's actually an insurance

because if something bad happens with your PT, so you buy it for $10,000, you lose $10,000. But because you have a loan of $9,000 where you don't reimburse your loan, so it's very bad for the counterparty, of course, you maybe think that you're an if you do this. This is a risk. Someone is lending you money again a risky collateral. They take the risk. So you are on the other side of the trade. So meet what I do. I borrow USC against a PT. If I if there is a problem, I don't give back the money. So what is my loss? I will lose 10K of my investment. But because I don't give back my 9K loan, I actually only lose 1K. So when I I deploy this kind of strategy, I actually deploy way more capital. So I buy a lot of PT which

ensures me. I do this when the PT is is really good like 15 20 sometimes 30% and of course I can borrow against it on or on morpho and then if I really don't not comfortable I put even more money and then I I borrow money to protect myself and like that I have a highly risky asset in a PT that pays a lot but I protect myself with a loan and then the loan I will invest it of course in a strategy which is low risk so for example I can st it on a in their new umbrella strategy So again this for example could it's an example but if you put 70% in a lowrisk strategy with pays 5% you're going to make 3.5% per year on your capital and if you allocate 30% in a risky strategy which pays 20% you will make 6% per

year. So by doing this you make 9.5% per year on your capital rather that if you put all your money in the lowrisk strategy you will make 5%. So it's almost a double. So this is the riskreward. You have to understand that uh if you allocate u capital into highly high higher risk strategy but not only one strategy you don't put all your money into one strategy. The idea is that you you do for example 10 risky strategy and the 10 risky strategy can make you win 6% so in total 9%. Which this is called the EV so mathematical experience experience. So for example if you risk if you this is what I'm doing. I run a lot of different strategy which are sometimes risky but because I I run 20

strategies and I and I put my capital into all those strategies. Um so let's say I run 20 strategy and two of them goes to zero. So I lose everything. I'm still profitable. I just finish with this one. If I if I run 20 strategy 18 of them are profitable at and they make 20% and on two of them I lose money but only 10%. then uh the the reward is 17% versus if I run free low strategy I will only make 5%. So this is the way uh I think and voila thank you [Applause] So quick quick question if someone has

one. If no, as I said, I will just share my details. It's here. Uh so here you have all my links. Again, I have excel spreadsheet for who is interested. I have a video that explain how I'm using the excel spreadsheet. I may not answer this week because it's a mess, but next week I will answer to you. And if there is no question then I wish you a good day in Ken. [Applause]