Leveraged Portfolios
Last updated
Last updated
Leveraged portfolios are one of the major upgrades to version 2 of the Bridge Mutual protocol. They are a specially dedicated pool where users can deposit funds for leveraging and get exposed to a high-reward / higher-risk yield farming scenario.
Leveraged portfolios act as a leveraged coverage provider and offer a much higher APY than regular coverage providing. Users participating in leveraged portfolios get rewards in stablecoins, BMI tokens, and Shield mining tokens. Due to the high-reward nature, leveraged portfolios are naturally fit for packaged investment products.
The risk of the leveraged portfolio depends on the MPL (maximum permissible loss) parameter. Each leveraged portfolio has an MPL for each Coverage Pool in which it participates. MPL determines what percentage of the portfolios' funds can be lost to a single Coverage Pool in case all of the policies bought in the pool are honored.
For example: if a leveraged portfolio has a parameter of 80% MPL for the AAVE pool, this means that in the event of AAVE being hacked, and all policies in the AAVE pool being honored at 100%, the leveraged portfolio could lose 80% of its total invested capital.
A lot cheaper insurance for policyholders
A lot higher APY for liquidity providers in the leveraged portfolios
During the launch of V2 only one leveraged portfolio will be deployed. Later on, we envision having multiple portfolios with different risk configurations.
The risk of the leveraged portfolio depends on the MPL (maximum permissible loss) parameter. Each leveraged portfolio has an MPL for each Coverage Pool in which it participates. MPL determines what percentage of the portfolios' funds can be lost to a single Coverage Pool in case all of the policies bought in the pool are honored.
For example: if a leveraged portfolio has a parameter of 80% MPL for the AAVE pool, this means that in the event of AAVE being hacked, and all policies in the AAVE pool being honored at 100%, the leveraged portfolio could lose 80% of its total capital.
Yes and no. On one hand, leveraged portfolios aren't for everyone. They are only for the most risk-tolerant individuals who are also looking to reap the most benefit. On the other hand, MPL is a measure of the worst-case scenario, the average case should be less extreme.
In either case, putting money in the leveraged portfolios exposes you to a higher than the average risk of regular coverage providing.
Each leveraged portfolio will list the range of MPL it uses across different pools on the Provide Coverage page. After you click on the leveraged portfolio it will show you all the Coverage Pools in which it participates and the respective MPL parameters for them.
Each leveraged portfolio will display its own APY (similar to regular coverage pools). This APY is based on a rather elaborate calculation which includes:
APY in USDT from all the Coverage Pools in which the leveraged portfolio participates
APY from Shield Mining from all the Coverage Pools in which the leveraged portfolio participates
APY from BMI based on the risk profile of the leveraged portfolio
It is up to the user to gauge the risk/reward balance of each leverage portfolio and decide if they want to deploy their capital.
Apart from normal percentage reward distribution rules (more funds = less APY), the Leveraged Portfolio APY is heavily dependent on the number of pools it participates in, and their respective Utilization Ratios.
The Leveraged Portfolio will only participate in pools in which APY is >=15%.
Considering the above the Leveraged Portfolio can only thrive with not just a high TVL but more importantly high Total Active Cover Amount to TVL ratio (high Utilization Ratios all throughout the app).
Each leveraged portfolio has a limit on the amount of capital it can accept. This is done in order to stabilize the protocol and prevent overleverage.
We have made a great deal of effort to ensure that this new functionality keeps the protocol fully solvent AND liquid.
The protocol is not selling policies using the leveraged funds.
They don't; they just make purchasing new cover a lot cheaper for new policyholders.
