Equilibrium Receives a Grant From Web3 Foundation!
We are proud to announce that Equilibrium has received a grant from Web3 Foundation to pioneer services that facilitate other projects’ migration to Polkadot. Web3 Foundation and Parity are the entities behind the Polkadot project which is poised to revolutionize distributed ledger technology (DLT) with its scalability and interoperability between blockchains.
Equilibrium is currently building on Substrate, using its technology to maximize non-custodial, pooled liquidity across digital assets and protocols.
Polkadot’s innovations come at a point when Ethereum’s technological limitations have become exceedingly clear — as seen during the DeFi market collapse in March this year, when extreme network congestion impacted Ethereum, resulting in havoc and multi-million dollar losses. This leaves many existing Ethereum-based projects looking for a way to join the Polkadot ecosystem.
Equilibrium aims to help other projects in the ecosystem by offering them the use of its financial pallet. It will be a handful pallet for anyone building complex decentralized finance (DeFi) and financial technology (Fintech) solutions using Substrate technology. It is designed to gauge instrument and portfolio risk irrespective of the asset and portfolio considered. The pallet will be a convenient tool for anyone building DeFi dApps on Substrate, and in particular for those teams who are willing to go beyond hard-coded arbitrarily-set risk metrics. As such, it represents a valuable service and enablement for financial applications looking to upgrade and expand their reach beyond Ethereum.
Equilibrium’s financial pallet is an open-source Substrate module that subscribes to external price feeds/oracles, gathers asset prices and calculates financial metrics based on the information collected. The financial module will be a beneficial pallet for anyone building complex DeFi and Fintech solutions using Substrate technology because it offers a lot of functionality out of the box to reduce development efforts.
The financial pallet provides a means to calculate various statistical measures of users’ crypto asset portfolios for the purposes of risk calculations and financial modeling. Equilibrium’s pallet is able to:
- gather prices from a price oracle
- calculate returns
- calculate volatilities and correlations
- calculate portfolio risk
- calculate Value at Risk measures
The Equilibrium grant application introduces an extensive development roadmap:
Milestone 1 — Initial implementation, subscription to oracle
(Sep 21 — Oct 4).
- A fixed-point math implementation using a Substrate-fixed library.
- Implementation of a subscription to oracle price changes and storage prices in price arrays with default time intervals: 1 minute, 10 minutes, 1 hour, 4 hours, 1 day.
- Implementation of functions that perform returns and log return calculations for a given frequency.
- Creation of the pallet interface with a complete set of functions (calculating returns, calc. volatility, calc. correlations, calc. portfolio risk, calc. Value at Risk).
- Implementation of traits for each statistical parameter calculation.
- Code publication in Equilibrium’s public GitHub repository.
Milestone 2 — Returns, volatilities, and correlation calculations
(Oct 5 — Oct 18).
- Implementation of a unified data structure for each asset with calculated information.
- Adding the ability to supply historical prices via configuration when starting the chain.
- Implementation of functions for volatility and correlation calculations which will return corresponding numbers for given assets and frequencies.
- Calculating volatility and correlations using a standard statistical approach and using an exponential weighted average approach.
- Code publication in Equilibrium’s public GitHub repository.
Milestone 3 — Portfolio volatility calculations, Value at Risk calculations
(Oct 19 — Nov 8).
- Implementation of a method to calculate portfolio volatility for a given user account/portfolio.
- Implementation of a method to calculate Value at Risk using standard and log normal approaches.
- Demonstration of volatility and VaR calculations in action within our substrate for several different portfolios.
- Running integration tests: run a full node, deploy substrate with oracle and financial pallet, calculate sample portfolios using different assets and different frequencies with time shifts.
- Code publication in Equilibrium’s public GitHub repository.
The financial pallet will be further used in Equilibrium’s DeFi parachain for the risk and pricing models to calculate interest rate fees, assess borrower portfolio risks and overall system risks in real-time, in order to correct these proactively with its strategic bailsmen and insurance systems.
Further plans on the Financial pallet development beyond the grant’s scope
The Web3 Foundation grant supports this stage of our DeFi pallet. We foresee a future continuous evolution in the implementation of advanced financial models and technological add-ons. Here is the preliminary list of developments that we propose:
- Implementation of time-weighted calculations based on available frequencies. Introduction of high frequency (intraday) volatility measuring techniques (e.g. Garman-Klass volatility).
- Implementation of GARCH, EWMA, Historical simulation, Monte-Carlo simulation VAR calculations. Equilibrium will rely on offchain-worker functionality where applicable to perform heavy calculations (e.g. Monte-Carlo simulations).
- A working proposal to update XCMP to include price, price source, and volatility parameters into the cross-chain communications protocol.
Learn more about Web3 Foundation by visiting their website. For more details about Web3 Foundation’s latest developments, join them on Reddit or Twitter.
