How to mitigate risk with Summer.fi Superpowers
Become the ultimate DeFi super-hero with the Stop-Loss Shield and the Auto-Sell Orb
What are the risks when investing in Defi, and how can Summer.fi help?
The benefits of Defi are numerous; it offers open access, interoperability, transparency, and self-custody and can undoubtedly offer financial gains. However, it’s not without risk. In this blog, we will cover some of the common risks in Defi and how you can use Summer.fi’s features to become the ultimate DeFi Superhero.
Trusted Strategy Curation
Defi is less regulated than traditional financial sectors; as a result, scam projects are more prevalent. These villains are created with the specific purpose of stealing funds from users or promising a service that is paid for but never intended to be delivered, known as a `Rug-Pull`.
Summer.fi helps you to navigate the Defi landscape by curating and providing only the best protocols in Defi. We ensure that all the protocols we integrate with are rigorously audited by recognized security audit firms. We do the due diligence for you so you can trust the protocols and strategies that we offer are not scams.
Risk management tools and gadgets!
Crypto assets tend to be volatile. But by using Summer.fi’s gadgets, you will be empowered to fight any villain in the space while remaining protected.
Stop-Loss Protection
Stop-loss protection is an automated tool that will protect you from liquidation or significant losses.
Simply choose your Stop-loss trigger level based on your position LTV, and feel safe knowing that if your position hits this trigger. Your collateral will be sold, your debt will be repaid, and any remaining funds will be returned to your wallet. All of this happens automatically, even if you are sleeping. When you set your Stop-Loss Protection, you can also choose which asset to receive when the protection is triggered: either your deposited collateral or debt token.
Ultimately, this protects your position from liquidation and the resulting penalties. Stop-loss protection is currently available on Maker and Aave positions. Find out more at https://docs.summer.fi/automation/stop-loss.
Auto-Sell
Auto-Sell is an automation tool designed to keep your position’s collateralization ratio above a certain level. This may be beneficial in a bear market where the value of your collateral is decreasing. Not only does it decrease your exposure to the asset when the price is falling, but it also de-risks your vault by keeping the collateralization ratio away from your Stop-Loss or liquidation threshold.
With Auto-Sell, you must set the Sell trigger and the target collateralization ratio. When triggered, it will automatically sell the right amount of collateral and use it to repay enough debt to bring your position back up to your target collateralization ratio.
Say your vault’s collateralization ratio is 250%, and you want to set up an automated strategy that protects your vault from liquidation without closing your vault. You could set up an Auto-Sell trigger that will execute at 175% with a target ratio of 210%.
This can happen recursively, so in the unfortunate event that the value of your collateral continues to drop, the Auto-sell can trigger multiple times, continuing to reduce your exposure to the asset and preventing you from getting liquidated.
You may be worried about the gas fees in these recurring transactions; well, we have that covered! You can set a max gas fee when setting up your Auto-Sell; if the network fees are too high, it will not execute.
You can find more about Auto-Sell here
Combining Strategies
This is where you can implement your giga-brain risk mitigation strategy and definitely become a DeFi SuperHero. By combining your Auto-sell strategy with Stop-loss protection, you protect your position from price changes and from incurring excessive gas costs.
If your Auto-sell does not trigger if gas costs are too high or there is not enough collateral to sell to hit your target ratio. Your position is still protected from the worst-case scenario, liquidation, by your Stop-Loss.
Conclusion
Defi is full of opportunities and risks; risk management is the key to long-term success. Summer.fi provides you with the most innovative gadgets to become a SuperHero in this space, giving you the best chance of long-term, sustainable gains in the market.
Getting help
If you have any questions regarding Summer. fi in general, contact us at support@summer.fi or on our social media.