DeFi
Superposition Finance Redefines DeFi with Its Risk Management Models
In this episode of CryptoCurrents, Leonard Kim returns as host to speak with Alex HoffmanEcosystem Manager at Overlay Financinga company setting a new standard in decentralized finance (DeFi) by focusing on innovative risk assessment models.
Having started his career in entrepreneurial ventures across a variety of industries, including furniture and healthcare, Hoffman has leveraged his diverse background to uniquely position himself in the crypto finance space. His journey, from active participation in Solana hackathons to leading roles in projects like Nirvana, ultimately led him to his current role at Superposition Finance, where he aims to fill critical gaps in DeFi Risk management.
But how does Superposition Finance stand out from conventional DeFi platforms? By deploying advanced risk models originally developed for traditional finance (TradFi) in the volatile world of cryptocurrencies.
Superposition Finance’s approach brings institutional-level risk assessment to DeFi, improving capital efficiency and investor safety. And unlike traditional models that offer static, raw collateral valuations, Superposition uses a dynamic value-at-risk model that provides a holistic assessment of a user’s portfolio, considering both assets and liabilities.
With its model, Superposition creates more nuanced risk assessments that account for the unique behaviors of different cryptocurrencies and their interrelationships. It adapts in real-time to market conditions, reducing unnecessary liquidations and improving the overall stability of the financial ecosystem on the platform.
For example, during market declines, Overlay’s model adjusts the valuation of collateral like APT (Aptos tokens) in a way that minimizes unnecessary liquidations, maintaining higher capital efficiency than other platforms.
The core of Superposition Finance’s innovation lies in its oracle, a “super oracle” designed to collect and synthesize a vast array of data far beyond the capabilities of existing oracles. This system integrates price data with market depth and other critical financial indicators to support its sophisticated risk models.
“To do a risk model properly, you need 180 days,” Hoffman says, noting that the ups and downs come when “an event has triggered a crazy surge.” He continues, “But that doesn’t mean everyone has to be liquidated, which is usually the case.”
Data depth is crucial to understanding market behaviors and ensuring that the platform’s financial operations reflect accurate and fair market conditions, especially during volatile periods.
Additionally, Superposition’s approach includes a cutting-edge approach to collateral management across blockchains, emphasizing the importance of keeping assets in their native environment while leveraging them across the ecosystem. This unique method not only improves security, but also maximizes capital efficiency by allowing users to borrow against correlated assets without transferring them across chains.
As DeFi continues to evolve, Superposition Finance is actively expanding its offerings to include new features like the “multiplication feature,” which allows for significant leverage opportunities within the ecosystem. They are also developing something built on what was originally called Concordia, which is the risk layer.
“And I can’t talk too much about it either, but we’re going to leverage what Concordia is doing, which should allow us to be well beyond what’s happening in DeFi right now,” Hoffman noted.
In essence, Superposition Finance is not just another DeFi platform, but a pioneer in integrating sophisticated risk management models derived from TradFi with the innovative potential of decentralized finance. This integration promises to make DeFi more accessible and secure for both seasoned investors and newcomers, paving the way for more widespread adoption of crypto-financial technologies.