How to reduce risk effectively in your position.
Effective risk management is essential for achieving success in any investment strategy. In this blog post, we'll dive into practical methods to minimize risk in your Oasis positions and showcase the versatility of our Dapp as a valuable resource to help you safeguard your investments.
Borrow-lend protocols are integral to the DeFi landscape, enabling users to access and generate digital assets like DAI. They provide increased liquidity and offer various collateral types, interest rates, and collateral ratios to satisfy various risk profiles. These protocols streamline the borrowing process, offering flexibility in repayment schedules without the constraints of minimum payments or credit history requirements.
Whether you're utilizing Borrow or Multiply vaults, learn how each can effectively contribute to risk reduction, ensuring a more secure and prosperous financial journey in DeFi.
2 Simple and Actionable Strategies for Risk Management with Your Borrow Vault
Set an optimal Collateralization Ratio:
Setting an optimal collateralization ratio is crucial when establishing or adjusting your borrow vault. Choose a CR based on your risk tolerance and market outlook to ensure the stability of your borrow vault and prevent liquidation.
In a borrow vault, you deposit collateral and generate DAI. So the easiest way to reduce your risk and increase your CR is to pay back some of your DAI debt or deposit more collateral. You can do this in the overview tab of your vault.
Doing any of these actions will increase your Collateralization Ratio, leaving your vault away from liquidation.
Implement a Dynamic Stop Loss Strategy:
The automated Stop-Loss feature helps you protect your investments from unexpected market downturns. Implementing a dynamic stop-loss strategy allows you to minimize losses and safeguard your borrow vault during periods of market volatility. By avoiding liquidation, you save up to 13% in penalties, and the additional downturn in your asset.
To do so, head to the Protection tab in your vault, and choose Setup Stop-Loss. You can select to close the vault to collateral or DAI when Stop-Loss is triggered. Use the slider to choose the Dynamic Stop-Loss and confirm the transaction. All the new ratios and parameters are visible in the UI before confirming the transaction.
Learn everything you need to know about Stop-Loss in this article: https://docs.summer.fi/automation/stop-loss
Managing Risk in a Multiply Vault
Numerous strategies and techniques are available to mitigate potential risks associated with market fluctuations and other unforeseen events. To help you safeguard your investments and maximize returns, we will analyze 2 simple but effective risk management tools that can be effectively implemented when utilizing Multiply Vaults on Oasis.
Optimize Collateral Ratio for Multiply Vaults:
When setting up or adjusting your position in a Multiply vault on Oasis.app, selecting a proper Collateral Ratio based on your risk tolerance is critical. The Collateral Ratio represents the amount you're borrowing compared to the value of your collateral.
To set it up, go to your vault and simply adjust the slider to the new CR of your choice. You can see the changes in your vault parameters and the transaction details about to happen in the UI. Then, you only need to confirm the transaction for your new Collateral Ratio.
Manage Liquidity and Diversify Collateral in Multiply Vaults:
Ensure adequate liquidity to cover potential losses and maintain various collateral types in your Multiply vault. This approach reduces concentration risk and enhances the stability of your position during market fluctuations.
To manage liquidity in your vault, either collateral or DAI, click on the dropdown menu below and choose how you would like to manage your vault liquidity. You can deposit or withdraw collateral and increase, decrease, or withdraw DAI.
Ensure you check the new vault parameters before confirming the transaction.
By incorporating these 4 effective and actionable strategies into your risk management approach, with proper planning and vigilance, you'll be well-equipped to manage risk and achieve long-term investment success.
Remember to bookmark this ultimate guide for future reference and share it with others who may benefit from these insights. For more information about our features, visit our Knowledge Base, join our Discord server, or read our blog!
Getting help
If you have any questions regarding Summer.fi in general, you contact us at support@summer.fi or on our social media.