Automated strategies for asset management and liquidation protection in DeFi

From the infamous Black Thursday in March of 2020 to the big $1 trillion wipe in May of 2021 and the latest Terra - 3AC - Celsius contagion, which led to the biggest crash this year, market crashes create headaches and lead to stress in CeFi and DeFi alike. However, the CeFi - DeFi difference was never as evident as during the last blow when numerous CeFi entities were caught off-guard by margin calls. One of the biggest crypto companies has even filed for bankruptcy. Things in DeFi have remained more or less stable as global deleveraging occurred. The code and design of DeFi protocols forced borrowers to pay back their loans or face imminent and automatic liquidation. DeFi loans CeFi entities had to pay back no matter what. That’s what DeFi is all about.  

In 2018 a market crash birthed the idea of creating a DeFi product that would enable users to pay back their loans easily, and, if possible - automatically, without the risk of liquidation. Why wouldn’t it be possible if DeFi is based on smart contract composability, with DeFi protocols and apps able to interact with one another in a permissionless way?  

The idea was to create a DeFi service that would allow people to step back from their computers and sleep peacefully or go on a vacation without worrying if they would get liquidated during big market crashes or due to the ever-present volatility in the crypto space. That’s how DeFi Saver came to be and how a small team from Serbia developed an app for intelligent and powerful DeFi asset management. The team began curating and integrating only the most trusted DeFi protocols on the Ethereum mainnet - Maker, Compound, Aave, Liquity, and others, adding their unique and advanced features along the way and providing their Automation service. 

So, what is Automation? 

DeFi Saver’s Automation is a non-custodial, trustless system for automatic liquidation protection and leverage management of DeFi positions. Users input their desired collateral and debt ratio, and Automation will automatically monitor the positions and make necessary adjustments, depending on the market conditions. It will increase or decrease leverage depending on the price of the underlying collateral, increasing user exposure in favorable market conditions or preventing liquidation and loss of funds in the opposite direction. Automation will either sell part of the collateral to pay off the debt or will borrow and acquire more of the supplied asset, increasing the leverage based on the provided ratio. 

Following the famous DeFi summer of 2020, the team introduced it for Compound and Aave protocols. This year, DeFi Saver went beyond the ratio-based liquidation protection and introduced the first Stop Loss and Take Profit automated strategies for Maker and Liquity based on price triggers. The new modular trigger-based architecture allows for the creation of even more advanced strategies, which are on the roadmap.  

The app went live in 2019 when network congestion on Ethereum wasn't an issue. Yet, with the growing number of users, Ethereum gas fees made the Automation feature inaccessible for many retail users, something the team has wanted to address for a long time. High transaction gas fees led them to introduce a minimum debt requirement for the service to protect the users and the system from extremely high gas prices and transaction costs, especially during big market crashes. 

DeFi Saver launched their app over a month ago on Layer 2 optimistic rollup networks Arbitrum and Optimism, initially bringing the app's advanced set of features to Aave v3 protocol with more protocols integrations in store. L2 support brings twofold benefits. Automation is no longer available only for sizable positions, making it more accessible to the general audience. Users can now automate Aave v3 positions with just $500 of debt. On the other hand, it also became much more appealing as users can keep their positions safe from liquidation with drastically, even up to 20 times, reduced transaction fees. As the number of users and usage on L2s increases, we’ll see more traditional and L2 native protocols as well as some new automated strategies like DCA and trailing stop-loss. 

Explore the first automated DeFi management options on Optimism and Arbitrum. 

Automate your DeFi positions and stop worrying about liquidations with DeFi Saver. 

This post is commissioned by DeFi Saver and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.