# Welcome to Notum

We Simplify DeFi

### [All Investments in One Space](/defi/types-of-defi-investments)

Notum aims to consolidate all information on available DeFi investments in the EVM space onto one user-friendly platform. There is no need for switching between multiple platforms to compare yields and rates. It's all brought together in one place.

### [Risk Assessment ](/risk-assessment/risk-assessment-framework)

By implementing risk assessment, Notum strives to create a more user-friendly environment for the DeFi market. We are confident that by simplifying the complex DeFi schemes and protocols functionality into easy-to-grasp components, we can encourage more people to adopt DeFi opportunities on a larger scale. This will result in a higher number of individuals prepared to embrace and utilize DeFi services, thus the future of finance.


# FAQs

FAQ page to find answers to commonly asked questions about Notum.

**What is Notum**

Notum is a platform that aggregates DeFi strategies. 

**What is the expected return or APY**

APY varies with market fluctuations. Users should monitor real-time data for accurate expectations, accessible through our platform's analytics section or trusted DeFi data aggregators.

**What risks are associated with investing in this DeFi pool**

Risks include smart contract vulnerabilities, impermanent loss, regulatory uncertainty, and market volatility. Users should conduct due diligence and diversify investments.

**How often are rewards distributed, and in what form (tokens, stablecoins, etc.)**

Rewards vary in frequency and form, distributed periodically as additional tokens, or an increase in the base asset. Details are available on our platform or protocol documentation.


# Types of DeFi Investments

Explore DeFi investing with Notum: your comprehensive guide to DeFi investment strategies, from liquid staking to leveraged farming. Discover how to invest in DeFi with confidence.

### Introduction

In the dynamic world of decentralized finance (DeFi), understanding a range of DeFi investment strategies is essential for effective investing. The DeFi investment landscape is rapidly evolving, and being well-versed in the key segments of DeFi investment funds is crucial for informed decision-making.

Notum is committed to demystifying the complexities associated with DeFi investments. Our goal is to make DeFi investing clear, straightforward, and accessible, enhancing the efficiency of your investment journey.<br>

### **Strategy Types Overview**

#### [Liquid Staking](/defi/types-of-defi-investments/liquid-staking)

Liquid staking is a DeFi strategy offering passive income through the staking of crypto assets in a liquidity pool while receiving additional tokens. It combines the benefits of earning staking rewards and maintaining liquidity by allowing users to utilize the additional tokens in other DeFi applications.&#x20;

Ideal for those seeking higher returns and enhanced liquidity, this low-risk strategy is mostly automated and prevalent on platforms like [Lido](https://lido.fi/) and [RocketPool](https://rocketpool.net/).

#### [Liquidity Pool Provision](/defi/types-of-defi-investments/liquidity-pool-provision)

Liquidity Pool Provision in DeFi involves investors contributing assets to a pool to facilitate trading on decentralized exchanges, earning rewards from trading fees.&#x20;

This strategy, requiring active management and understanding of market dynamics, offers variable returns and is associated with medium risk, including impermanent loss and market volatility. Popular platforms for this strategy include [Uniswap](https://uniswap.org/), [Balancer](https://balancer.fi/), and [Stargate](https://stargate.cosmos.network/).

#### [Yield Aggregation / Vaults](/defi/types-of-defi-investments/yield-aggregation-vaults)

Yield Aggregation or Vaults in DeFi involves depositing crypto assets into a vault where smart contracts automatically allocate them across various yield farming strategies to maximize returns.&#x20;

This medium-risk, automated strategy requires low to medium user involvement and offers moderate potential returns. It's popular on platforms like [Yearn.Finance](https://yearn.fi/), [Harvest](https://www.harvest.finance/), [Idle](https://idle.finance/), and [Beefy](https://beefy.com/), with key risks including smart contract vulnerabilities, protocol changes, and market volatility.

#### [Yield Farming](/defi/types-of-defi-investments/yield-farming)

Yield Farming in DeFi is a medium to high-risk investment strategy where users deposit or stake their crypto assets in a DeFi protocol or smart contract.&#x20;

These assets are utilized for various purposes like lending or providing liquidity. In return, users earn rewards or interest, often in the form of the protocol's native token.&#x20;

This active strategy offers variable returns and requires a significant degree of user involvement, with platforms like [Aura](https://aura.finance/), [Convex](https://www.convexfinance.com/), and [Pendle](https://www.pendle.finance/) being popular choices

#### [Lending](/defi/types-of-defi-investments/lending)

Lending in DeFi is a low-user-involvement, conservative return strategy where participants lend their crypto assets on decentralized platforms like [AAVE](https://aave.com/), [Compound](https://compound.finance/), [Venus](https://venus.io/), and [Maker DAO](https://makerdao.com/en/), earning interest in return.&#x20;

This automated process is akin to traditional lending but operates on blockchain technology, with primary risks being smart contract vulnerabilities and protocol changes.

[**Leveraged Farming**](/defi/types-of-defi-investments/leveraged-farming)

Leveraged Farming Investments in DeFi are a high-risk strategy that involves using borrowed funds to amplify investment potential in yield farming.&#x20;

This method, which requires medium to high user involvement, offers the possibility of high returns but is also associated with significant risks like market volatility, smart contract vulnerabilities, and protocol changes. It is commonly practiced on platforms like [Alpaca Finance](https://www.alpacafinance.org/) and [Extra Finance](https://app.extrafi.io/).

#### [Liquidity Managers](/defi/types-of-defi-investments/liquidity-managers)

Liquidity Managers in DeFi are an automated, medium-risk investment strategy focusing on managing and optimizing liquidity provision in various protocols. With low to medium user involvement, they offer moderate potential returns.&#x20;

These platforms, such as [Gamma](https://www.gamma.xyz/) and [Arrakis](https://www.arrakis.finance/), aim to mitigate risks like smart contract vulnerabilities, protocol changes, and market volatility, making them a suitable choice for investors seeking a more hands-off approach to liquidity provision.

### FAQs

<details>

<summary><strong>How to Invest in DeFi?</strong></summary>

DeFi, or decentralized finance, can be a good investment opportunity for those who understand the market dynamics. It offers innovative financial products outside of traditional banking.

To invest in DeFi, follow these steps:

1. **Educate Yourself**: Learn about DeFi and its investment opportunities.
2. **Set Up a Wallet**: Create a digital wallet to store cryptocurrencies.
3. **Purchase Cryptocurrency**: Acquire Ethereum or other DeFi-compatible cryptocurrencies.
4. **Choose a Platform**: Select a reputable DeFi investment platform like Notum.
5. **Start Investing**: Begin with small investments to understand the process better.

</details>

<details>

<summary><strong>Is DeFi a Good Investment?</strong></summary>

Yes, DeFi can be a good investment for those who understand its mechanisms and market trends. It offers innovative financial solutions beyond traditional banking. However, it's important to consider the associated risks and your own risk tolerance before investing.

</details>

<details>

<summary><strong>Is Investing in DeFi Safe?</strong></summary>

Investing in DeFi has its risks, including market volatility and technological vulnerabilities. To enhance safety, conduct thorough research, use secure and reputable platforms like Notum, and diversify your investments.

</details>

<details>

<summary><strong>Where to Invest in DeFi?</strong></summary>

Notum is an excellent platform for investing in DeFi. It offers a variety of investment options, from yield farming to liquidity pools, tailored for different investor needs. Notum's user-friendly interface makes it accessible for both beginners and experienced investors in the DeFi space.

</details>

<details>

<summary><strong>How Can I Invest in DeFi?</strong></summary>

To invest in DeFi:

1. **Learn About DeFi**: Understand different DeFi investment strategies.
2. **Get a Digital Wallet**: Set up a wallet to hold your cryptocurrencies.
3. **Buy Cryptocurrencies**: Acquire Ethereum or other compatible cryptocurrencies.
4. **Use a DeFi Platform**: Choose a trusted platform like Notum to start your investment journey.
5. **Monitor Your Investments**: Keep track of your DeFi investments and stay updated with market changes.

</details>


# Liquid Staking

A passive income generation method where users stake assets in a liquidity pool, receiving tokens in return. This strategy allows users to staking rewards and use assets in other DeFi operations.

### Overview

Liquid staking offers a straightforward and low-risk method for generating passive income through the commitment of cryptocurrency assets to a liquidity pool. This approach rewards users for staking their assets, with most of the process being automated and requiring minimal user engagement. It is an excellent choice for individuals looking to earn passive income without significant active involvement. Through liquid staking, users can earn **potential rewards ranging from 3 to 8%** while also contributing to the enhancement of network security.

### **Risk and Reward Profile**

* **Risk Level:** Low
* **Potential Returns:** Low
* **Potential Risks:** Includes market volatility, smart contract risks, and protocol changes.

### **How It Works**

1. Users **select a liquid staking platform** such as Lido or RocketPool.
2. They **deposit their cryptocurrency** into the platform’s liquidity pool.
3. In return, users **receive a corresponding amount of liquidity tokens**, often known as staking derivatives. These tokens represent the user’s share in the pool.
4. These liquidity tokens can be traded, used as collateral, or utilized in other DeFi applications for additional yield farming opportunities, thereby maintaining liquidity.
5. While the original assets are staked, they earn staking rewards based on the performance of the liquidity pool.
6. Users can redeem their staking derivatives for the original staked assets, along with the accrued rewards, based on the terms of the platform.

### FAQs

<details>

<summary>What happens if the value of the staked assets drops?</summary>

The value of the liquidity tokens may decrease, reflecting the market value of the underlying staked assets.

</details>

<details>

<summary>Are there fees associated with liquid staking?</summary>

Yes, platforms typically charge a fee for staking services, which can vary.

</details>

<details>

<summary>Can I unstake my assets anytime?</summary>

his depends on the platform's terms; some offer instant unstaking, while others may have a lock-up period.

</details>

<details>

<summary>Why is Liquid Staking is low-risk investment?</summary>

Liquid staking is a low-risk investment strategy as it offers added liquidity, potential for high returns, no lock-up period, and no active user involvement. Secure and efficient platforms like Lido or RocketPool make the process automated and provide liquidity for the staked assets, which means users can still use their assets in the DeFi space.

</details>

<details>

<summary>What are the Potential Risks of Liquid Staking?</summary>

Even though liquid staking is a simple and convenient way to get passive income, it is not without risks. This may include market volatility that can affect potential returns and exposure to smart contract risks.

</details>


# Liquidity Pool Provision

A vital component of DeFi where users provide liquidity to crypto exchanges by depositing pairs of assets into a pool. Participants earn a portion of the trading fees generated by the pool.

### Overview

Providing assets to liquidity pools is an investment approach with a moderate risk level, offering participants the chance to earn rewards. This method is especially fitting for experienced users seeking substantial gains and extra benefits through LP tokens. Engaging in liquidity pool provision can lead to anticipated **returns ranging from 10% to 30%** annual percentage yield (APY). In summary, for those familiar with decentralized finance (DeFi) and aiming for relatively high returns from their cryptocurrency holdings, liquidity pool provision emerges as a highly appropriate investment tactic.

### **Risk and Reward Profile**

* **Risk Level:** Medium
* **Potential Returns:** Variable and potentially high, depending on trading volume and market stability.
* **Potential Risks:** Exposure to impermanent loss, market volatility, smart contract vulnerabilities, and changes in protocol governance.

### **How It Works**

1. Investors select a liquidity pool on platforms like Uniswap, Balancer, or Stargate.
2. They deposit an equal value of two different assets into the pool, which then facilitates trading for that specific asset pair.
3. In return, investors receive LP tokens, representing their share of the pool.
4. The investors earn a portion of the trading fees based on their share in the pool.
5. The profit depends on trading volume, the volatility of the assets in the pool, and the overall market conditions.

### FAQs

<details>

<summary>What is impermanent loss, and how does it affect my investment?</summary>

Impermanent loss occurs when the price of your deposited assets changes compared to when you deposited them. This can lead to a temporary loss of value in your investment.

</details>

<details>

<summary>How do I choose the right liquidity pool?</summary>

Consider factors like the assets in the pool, historical performance, and the overall stability of the platform.

</details>

<details>

<summary>What are liquidity pool provision potential returns?</summary>

Potential returns from liquidity pool provision may vary depending on the asset, pool, chosen platform and market conditions. Typically, users receive an APR of 10% to 30%.

</details>

<details>

<summary>What are liquidity pool provision risks?</summary>

The main risks of liquidity pool provision include impermanent loss, market volatility, smart-contract risks and protocol changes.

</details>


# Yield Aggregation / Vaults

Users deposit their crypto assets into a DeFi vault, which then utilizes smart contracts to distribute these assets across different yield farming strategies. The vault aims to maximize returns.

### Overview

Vaults in DeFi offer an automated, medium-risk investment strategy, ideal for those seeking a balance between passive and active involvement in yield farming. Operating through smart contracts, these vaults diversify across various strategies, requiring less user engagement compared to liquidity pools while providing a broader range of opportunities than liquid staking. With potential annual **returns ranging from 5% to 25%**, vaults cater to investors looking for moderate to high yields without the need for extensive DeFi expertise or active management.

### **Risk and Reward Profile**

* **Risk Level:** Medium
* **Potential Returns:** Moderate, varying with the success of the chosen farming strategies and market conditions.
* **Potential Risks:** Includes smart contract risks, changes in protocols, and market volatility.

### H**ow It Works**

1. Investors **choose a platform** like Yearn.Finance, Harvest, Idle, or Beefy and deposit their crypto assets into a vault.
2. The vault’s **smart-contract automatically allocates these assets** across various yield farming strategies.
3. The vault manages operational aspects like gas fees and strategy adjustments, optimizing for the best possible returns.
4. Investors receive a share of the profits generated by the vault, proportional to their contribution.

#### FAQs

<details>

<summary>How do vaults manage to optimize returns?</summary>

Vaults use complex algorithms and smart contracts to analyze and adjust strategies, aiming for the best yield with given market conditions.

</details>

<details>

<summary>Are there withdrawal fees or penalties?</summary>

This varies by platform; some might have withdrawal fees or lock-up periods, which should be considered before investing.

</details>

<details>

<summary><strong>What is the difference between yield farming and yield aggregators?</strong></summary>

Yield farming involves actively participating in DeFi strategies, such as staking or providing liquidity, to earn returns. It requires direct involvement in choosing and managing these strategies. In contrast, yield aggregators are automated platforms that pool investors' funds and allocate them across various yield farming opportunities. Yield aggregators simplify the process, requiring less active management from the investor and often providing a diversified investment approach.

</details>

<details>

<summary><strong>What are crypto vaults?</strong></summary>

Crypto vaults are a type of yield aggregator found in the DeFi ecosystem. They are automated systems that pool investors' crypto assets and use them in various yield farming strategies. These vaults handle the complexities of yield farming, such as strategy optimization and managing transaction fees, making it easier for investors to participate in DeFi without needing extensive knowledge or time to manage their investments. The main goal of crypto vaults is to maximize returns while mitigating risks through diversified strategies.

</details>


# Yield Farming

Deposit assets in a DeFi protocol for lending or providing liquidity. Users earn rewards or interest, typically in the protocol's token, which can be further utilized within the DeFi ecosystem.

### Overview

Yield Farming in DeFi is an active investment strategy where users stake crypto assets in protocols for functions like lending, earning rewards or interest. This medium to high-risk strategy requires significant user involvement but offers substantial potential returns, with APYs **ranging between 10% and 40%**. Ideal for knowledgeable investors willing to actively manage their assets, yield farming presents opportunities for significant earnings in the dynamic DeFi market, balanced by the need for careful risk assessment and management.

### Ri**sk and Reward Profile**

* **Risk Level:** Medium to High, due to factors like market volatility and the complexity of DeFi protocols.
* **Potential Returns:** Variable and can be moderate, depending on the success of the chosen protocols and market conditions.
* **Potential Risks:** Includes market volatility, smart contract vulnerabilities, and potential changes in protocol governance.

### **How It Works**

1. Investors select a platform like Aura, Convex, or Pendle and deposit their crypto assets.
2. These assets are used by the protocol for various functions, such as providing liquidity or issuing loans.
3. In return, investors receive rewards or interest, usually in the protocol’s native token.
4. These rewards can be collected and either sold, staked, or reinvested in other DeFi protocols for further earning opportunities.

### **FAQs**

<details>

<summary>What factors should I consider when choosing a yield farming protocol?</summary>

Look at the protocol’s historical performance, tokenomics, and the underlying risks associated with its specific DeFi activities.

</details>

<details>

<summary>How do I manage risks in yield farming?</summary>

Diversify your investments across different protocols, monitor market conditions, and stay informed about protocol updates and changes.

</details>

<details>

<summary><strong>How does compounding work in yield farming?</strong></summary>

Compounding in yield farming involves reinvesting earned rewards to increase the total staked amount, potentially leading to higher returns over time.

</details>

<details>

<summary><strong>Can I withdraw my assets at any time from a yield farming protocol?</strong></summary>

This depends on the terms of the specific protocol. Some allow immediate withdrawal, while others might have lock-up periods or withdrawal fees.

</details>


# Lending

Providing crypto assets to decentralized platforms in exchange for interest payments. It's similar to traditional lending but implemented within the DeFi ecosystem.

### Overview

DeFi lending offers a low-risk, automated way to earn passive income by lending crypto assets on platforms like AAVE, Compound, Venus, and Maker DAO. With typical APYs **ranging from 5% to 10%**, it's a conservative yet profitable strategy that mirrors traditional lending in a decentralized environment. Ideal for those looking for steady, low-effort returns, DeFi lending requires minimal user involvement while providing interest earnings, making it an attractive option for investors looking for safe and stable income from their crypto assets.

### Ri**sk and Reward Profile**

* **User Involvement:** Low
* **Potential Returns:** Conservative, offering steady interest payments.
* **Potential Risks:** Mainly smart-contract risks and possible changes in the lending protocol.

### H**ow It Works**

1. Users choose a DeFi lending platform like AAVE, Compound, Venus, or Maker DAO.
2. They deposit their crypto assets into the platform, which then becomes available for borrowing by other users or for various DeFi activities.
3. In return, lenders receive interest payments, typically calculated based on the demand for the borrowed assets and prevailing market rates.
4. The process is largely automated, with smart contracts handling the allocation and distribution of interest.

### FAQs

<details>

<summary>How is the interest rate determined on lending platforms?</summary>

Interest rates are typically dynamic, based on supply and demand for the borrowed assets on the platform.

</details>

<details>

<summary>What happens if a borrower defaults on a loan?</summary>

Most DeFi lending platforms require collateral exceeding the loan value, mitigating the risk of defaults.

</details>

<details>

<summary><strong>Can I lend any type of cryptocurrency on these platforms?</strong></summary>

This depends on the platform. Most DeFi lending platforms support popular cryptocurrencies, but it's important to check which assets are accepted before lending.

</details>


# Leveraged Farming

Users to borrow funds to increase their investment stake in yield farming, thereby potentially amplifying returns. It's a complex strategy requiring a deep understanding of market dynamics and risks.

### Overview

Leveraged Farming Investments in DeFi present a high-risk, high-reward strategy, primarily suited for experienced investors. By borrowing funds to amplify yield farming investments, this approach offers the potential for significant returns, typically **ranging from 20% to 50%**. However, it requires a high level of user involvement and understanding of market risks, including smart contract vulnerabilities and market volatility. Commonly practiced on platforms like Alpaca Finance and Extra Finance, leveraged farming demands careful risk management and constant market monitoring, given its susceptibility to rapid market changes and potential for substantial losses.

### Ri**sk and Reward Profile**

* **Risk Level:** High, due to the increased exposure from leveraging.
* **Potential Returns:** Variable but potentially high, reflecting the higher risk and leverage involved.
* **Potential Risks:** Includes significant market volatility, smart contract risks, and changes in protocols.

### **How It Works**

1. Users select a platform specializing in leveraged farming, like Alpaca Finance or Extra Finance.
2. They deposit a portion of their own assets as collateral and borrow additional funds to invest in yield farming.
3. The borrowed funds increase the user's investment capacity, potentially leading to amplified returns.
4. However, if the market moves unfavorably, losses can also be magnified, and users might face margin calls or liquidation.

### FAQs

<details>

<summary>How much leverage is advisable in leveraged farming?</summary>

The level of leverage should match your risk tolerance and understanding of the market. Higher leverage increases both potential returns and risks.

</details>

<details>

<summary>What is a margin call in leveraged farming?</summary>

A margin call occurs when the value of your collateral falls below a certain threshold, requiring you to add more funds or risk liquidation.

</details>

<details>

<summary><strong>Is leveraged farming suitable for beginners in DeFi?</strong></summary>

Leveraged farming is generally not recommended for beginners due to its complexity and high risk. It's more suited for experienced investors with a thorough understanding of DeFi and risk management.

</details>

<details>

<summary><strong>How does leverage impact the returns and risks in farming?</strong></summary>

Leverage amplifies both potential returns and risks. While it can significantly increase profits from successful investments, it also increases the potential for larger losses.

</details>


# Liquidity Managers

This strategy involves using automated tools to manage and optimize investments in liquidity pools. Protocols handle the complexities of liquidity provision, making it more efficient for investors.

### Overview

Liquidity Managers in DeFi offer a medium-risk, automated investment strategy for managing liquidity in various protocols, suitable for investors seeking a more hands-off approach. With low to medium user involvement, these platforms, like Gamma and Arrakis, use sophisticated algorithms to optimize asset allocation in liquidity pools, aiming for moderate returns. The potential APY **ranges from 5% to 25%**, balancing the risks of smart contract vulnerabilities, protocol changes, and market volatility. This strategy is ideal for those looking to participate in liquidity provision with an efficient, managed experience, offering a practical solution for earning steady returns with reduced active management.

### **Risk and Reward Profile**

* **Risk Level:** Medium, with the primary risks being market volatility, smart contract issues, and potential changes in the underlying protocols.
* **Potential Returns:** Moderate, reflecting a balanced approach to risk and reward in liquidity management.
* **User Involvement:** Low to medium, as most of the operational aspects are automated.

### **How It Works**

1. Investors choose a liquidity management platform, deposit their assets, and select their preferred liquidity pools.
2. The platform’s algorithms automatically manage these assets, optimizing their allocation to different pools based on market conditions and yield opportunities.
3. Investors earn returns from trading fees and liquidity incentives, with the platform handling the rebalancing and risk management aspects.

### FAQs

<details>

<summary><strong>What makes Liquidity Managers different from traditional liquidity pools?</strong></summary>

Liquidity Managers automate the process of allocating and rebalancing assets in liquidity pools, optimizing for the best returns and managing risks more effectively than traditional, manual participation in liquidity pools.

</details>

<details>

<summary>How do liquidity managers differ from manual liquidity provision?</summary>

Liquidity managers automate the process, using algorithms to optimize asset allocation and manage risks more efficiently than manual methods.

</details>

<details>

<summary>What fees are involved with using a liquidity manager?</summary>

Platforms may charge management or performance fees. It's important to understand the fee structure before investing.

</details>

<details>

<summary><strong>Are returns from Liquidity Managers stable?</strong></summary>

While Liquidity Managers aim to provide moderate and steady returns, the actual returns can vary based on market volatility and the performance of the underlying liquidity pools.

</details>


# Types of DeFi APYs

Unlock the potential of DeFi investments with a better understanding of APY types. Get insights on how these factors shape your returns and make better investment decisions while investing in the DeFi

### Introduction

There are some crucial parameters in decentralized finance (DeFi) for investors that can significantly impact their earnings: [APY](https://notum.ai/glossary/apy), Base APY, Rewards APY, 30-day Average APY.

### **APY**

APY represents the annualized rate of return on an investment, factoring in compounding. It's commonly used in DeFi to quantify the potential return on assets deposited or staked within a protocol or platform

***

### **Base APY**

Base APY, or Base Annual Percentage Yield, serves as the foundational interest rate offered by a DeFi platform. It's the guaranteed annual return on your investment, expressed as a percentage. For instance, if a DeFi lending platform advertises a Base APY of 5%, that's the minimum interest you can expect to earn on your deposited assets.

DeFi investors often view Base APY as a reliable indicator of their earnings. It provides a steady and predictable return, making it an attractive choice for those who prioritize stability and sustainability in their investments.

### **Rewards APY**

Rewards APY introduces an exciting element of potential for DeFi investors. It includes additional rewards, typically in the form of governance tokens or native platform tokens, on top of the Base APY. These rewards can significantly enhance the overall yield of an investment.

Here's how it works:

* When you provide liquidity to a decentralized exchange (DEX), you may **earn tokens from the DEX** in addition to the Base APY. These extra tokens constitute the Rewards APY.
* In yield farming, staking your assets in a DeFi protocol can earn you not only the Base APY but also governance tokens issued by the protocol. These governance tokens are part of the Rewards APY.

> **High APY values are often a result of significant Rewards APY.** While these high numbers can be enticing, they also come with increased risk.&#x20;
>
> DeFi investors should carefully evaluate the sustainability and potential volatility of rewards when considering investments with exceptionally high APYs.

#### **Influencing DeFi Investment Decisions**

Understanding the interplay between Base APY and Rewards APY is crucial for DeFi investors when making investment decisions:

* **Base APY**: This forms the solid foundation of your earnings. It's a reliable indicator of your minimum returns and provides stability.
* **Rewards APY**: While exciting and potentially more profitable, it introduces additional complexity and risk. The value of governance tokens can be volatile, and the sustainability of reward mechanisms varies across platforms. Investors must carefully assess the long-term viability of rewards.

Balancing Base APY and Rewards APY is key for DeFi investors. Some prioritize the stability of Base APY, while others seek the potential for higher yields through Rewards APY.&#x20;

By understanding the dynamics of these two components, investors can make informed decisions that align with their risk tolerance and investment goals in the dynamic world of DeFi.

***

### Factors Affect APY in DeFi

Several factors can affect the APY in decentralized finance (DeFi) protocols. Here are some key factors that can impact APY in DeFi:

#### **Market Conditions**

DeFi APY is often influenced by broader market conditions. Fluctuations in cryptocurrency prices, trading volumes, and overall market sentiment can affect the demand for DeFi services and subsequently impact APY rates.

#### **Protocol-Specific Factors**

* **Supply and Demand:** APY rates are determined by the supply and demand dynamics within a DeFi protocol. If more users are depositing assets than are withdrawing, it can lead to higher APY rates.
* **Token Rewards:** Some DeFi protocols offer rewards in the form of their native tokens. These rewards can boost the APY for participants. The issuance and distribution of these tokens can affect APY.

#### **Liquidity Provision:**&#x20;

In liquidity pool-based DeFi protocols, providing liquidity by depositing assets can yield rewards in the form of trading fees. The APY depends on the trading volume and fees generated by the pool.

#### **Impermanent Loss**

Liquidity providers may experience impermanent loss, which occurs when the value of their deposited assets changes relative to the assets in the pool. This can impact overall APY.

***

### 30-Day Average APY

30-day average APY is **applied to smooth out short-term fluctuations in APY rates**. This is done by calculating the average APY over the past 30 days. It helps investors to assess the stability of returns within a DeFi protocol. If the APY fluctuates widely on a daily basis, the 30-day average can provide a more consistent view of the expected returns.

It helps stability, identifying trends, managing risk, making decisions, and planning for the long term. By providing APY rates over a 30-day period, investors can gain insights into the protocol's performance and have a positive effect on their investment decisions.

### **FAQs**

<details>

<summary><strong>What Is APY in Crypto?</strong></summary>

APY in the context of crypto refers to the Annual Percentage Yield earned by users who participate in various DeFi protocols and platforms. It quantifies the potential return on crypto assets deposited or staked within these platforms, accounting for compounding. Crypto APY rates can vary widely depending on the platform and the specific DeFi strategy.

</details>

<details>

<summary><strong>How Does APY Work?</strong></summary>

APY, or Annual Percentage Yield, is a measure of the annualized rate of return on an investment, typically in the context of cryptocurrency and DeFi (Decentralized Finance). It considers compounding, meaning that it takes into account the reinvestment of earnings, which can lead to higher overall returns compared to simple interest rates.

</details>

<details>

<summary>H<strong>ow Does a 7-Day Yield Compare to APY?</strong></summary>

A 7-day yield and APY are both measures of investment returns, but they differ in their timeframes. A 7-day yield represents the annualized return over a 7-day period, while APY calculates the annualized return over a full year, factoring in compounding. Comparing the two can provide insights into short-term vs. long-term investment performance.

</details>

<details>

<summary><strong>What Is APR vs. APY?</strong></summary>

APR (Annual Percentage Rate) and APY (Annual Percentage Yield) are both used to represent the cost of borrowing or the return on investments. The key difference is that APR does not account for compounding, while APY does. In financial products with interest or yield that compounds, APY provides a more accurate measure of the effective annual rate.

</details>

<details>

<summary><strong>What Is bonus APY?</strong></summary>

Bonus APY refers to an additional or enhanced Annual Percentage Yield that users can earn as a bonus or incentive in certain DeFi protocols or crypto platforms. It's often offered as an extra reward on top of the base APY for participating in specific activities or following certain conditions within the platform. Bonus APY can be an attractive feature for investors looking to maximize their returns in DeFi.

</details>

<details>

<summary>What is APY rewards?</summary>

APY Rewards in DeFi refer to additional annualized returns offered as incentives within decentralized finance (DeFi) platforms. These rewards can include extra tokens, boosted APY, or staking rewards, encouraging user engagement and enhancing overall returns.

</details>

<details>

<summary>Difference between <strong>APY vs. Dividend Rate?</strong></summary>

APY and dividend rates serve similar purposes, but they are applied in different financial contexts. APY is commonly used in DeFi and traditional finance to calculate the annualized return on investments, including compounding. Dividend rates are more common in the context of stocks, where they represent the portion of a company's earnings distributed to shareholders as dividends.

</details>


# Risk Assessment Framework

Explore Notum's DeFi Risk Assessment Framework, empowering crypto risk management for decentralized investments in the Web3 ecosystem.

### Introduction

Decentralized Finance (DeFi) represents a substantial improvement over the existing system of transferring value. One of the key innovations in DeFi is Decentralized Exchanges (DEXes), which facilitate seamless asset exchange. Over time, a variety of tools have rapidly emerged on top of DEXes, primarily designed to optimize DeFi processes. These tools offer users an efficient means of utilizing their funds, contributing to ecosystem maintenance while generating passive income for providers.

While there are many similarities between a decentralized financial system and a centralized one, the absence of a centralized authority is the main distinguishing feature that makes the decentralized system vulnerable to misconduct by involved parties, such as bad actors or malicious users. The rising number of hacks and exploits highlights the need for a risk assessment system that can be used by retail users, who are typically the most affected in such situations. With this in mind, we have decided to develop a tool for preliminary risk assessment for DeFi investments, believing that this could be a significant step towards broader adoption of Web3.

### Notum Risk Assessment Framework

At Notum, our goal is to visualize all potential risks for users, enabling them to make more informed decisions and continuously optimize their portfolios without depending on a single protocol or entity. The Notum Risk Assessment, which we introduce in this methodology, should not be seen as the sole and final tool for measuring risk. The primary purpose of this system is to establish a simple and transparent mechanism for swift risk assessment, providing a preliminary evaluation that considers factors generally regarded as important

Notum holds the belief that risk is not a fixed or straightforward concept, but rather one that is dynamic. Risk can originate from various sources and have an impact on multiple aspects of a DeFi project. It evolves over time in response to external events.

Furthermore, we acknowledge that risk exists objectively and can be measured and quantified, but it is influenced by how users perceive and evaluate it. Risk cannot be disregarded; instead, it must be acknowledged and dealt with. Therefore, it is crucial to employ a rigorous standard when assessing risks in DeFi.

Notum's risk assessment framework (RAF) comprises three key elements: protocol risks, asset risks, and pool risks associated with a specific strategy.

* **Protocol risks**: all risks related to vulnerabilities of the protocols. These risks are fundamental as they cover all the investment options provided by this protocol, thus it should be considered when assessing the risk of any single investment provided by the protocol.
* **Assets risks**: risk that stems from assets that are involved in the strategy. We calculate the risk of all assets that are used in the strategies that are displayed on the platform. If there are several assets involved in the strategy the average of these assets is used for calculating the overall investment risk.
* **Pool risks**: risks that stem from the details of the pool. Such as Liquidity in the pool, Impermanent loss, and blockchain details, which are used to host the pool. All these details are used to assess the risk of the pool.

#### **Risk Levels**

There are 3 risk levels and 6 different risk grades that you will find on the Notum Platform: **A, B, C, D, E, and F**.

* A and B grades refer to good, low-risk investments;
* C and D grades refer to average investments that might have several drawbacks or minor issues with some of the components;
* E and F refer to risky investments, which might have some significant issues.

<table><thead><tr><th width="188">Risk Level</th><th width="127">Risk Grade</th><th width="112">Risk Score</th><th>Meaning</th></tr></thead><tbody><tr><td>Low risk</td><td>A</td><td>>90</td><td>Aggregated weight of the risk parameters shows that investment has an extremely low chance of undermining user investments.</td></tr><tr><td>Low risk</td><td>B</td><td>80-90</td><td>According to risk parameters, investment can be considered a low-risk endeavor. Yet users should pay attention to the details of the pool.</td></tr><tr><td>Medium Risk</td><td>C</td><td>70-80</td><td>Based on risk parameters, these investment has an average risk level, and users are recommended to review strategy details before entering it.</td></tr><tr><td>Medium Risk</td><td>D</td><td>60-70</td><td>Based on this grade, the investments have several risk parameters that perform poorly, it is recommended to be cautious when interacting with the strategy</td></tr><tr><td>High Risk</td><td>E</td><td>50-60</td><td>Some of the parameters for these strategies have drawbacks and/or vulnerabilities, so users are advised to be cautious. with the strategies</td></tr><tr><td>High Risk</td><td>F</td><td>&#x3C;50</td><td>Most of the parameters for these strategies have significant drawbacks and/or vulnerabilities, users are advised to avoid these strategies.</td></tr></tbody></table>

### **Protocol Level Risks**

The following risks arise directly from the protocol and its inherent vulnerabilities, requiring a comprehensive and multidimensional analysis. Notum’s methodology assesses the protocol's security posture by examining six crucial factors, each holding an equal weight of ⅙ in the overall evaluation.

| Protocol Risk                           | Meaning                                                                           | Weight in percentage |
| --------------------------------------- | --------------------------------------------------------------------------------- | -------------------- |
| Protocol Audits                         | Number of all audits that the company has undergone.                              | 16.7%                |
| Protocol Audits in the Last 2 Years     | Number of audits that the company has undergone in the last 2 years.              | 16.7%                |
| Protocol’s Exploits                     | Number of all exploits and/or hacks that the protocols have had so far.           | 16.7%                |
| Protocol’s Exploits for Current Version | Number of all exploits or hacks for the latest / current version of the protocol. | 16.7%                |
| Protocol’s Maturity                     | Number of years the protocol has been running.                                    | 16.7%                |
| Protocol’s Liquidity (TVL)              | Total Liquidity that is controlled by a protocol in USD value.                    | 16.7%                |
| Overall                                 |                                                                                   | 100%                 |

#### **Protocol Audits**

| Risk Level | Risk Score | # of Audits |
| ---------- | ---------- | ----------- |
| Low        | 95         | < 2         |
| Medium     | 70         | 1           |
| High       | 50         | 0           |

The number of audits a protocol has undergone is a crucial factor in assessing its security. Zero audits imply a **high risk** due to the lack of external review. One audit suggests a **medium** **risk**, while two or more audits from different teams signify a **low risk**, indicating that the protocol's code has undergone thorough examination.

#### **Protocol Audits in the Last 2 Years**

This metric focuses on the recency of the protocol audits. The absence of audits in the past two years denotes a **high risk**, one audit suggests a **medium risk**, and two or more audits from different teams in this timeframe are indicative of a **low risk**.

| Risk Level | Risk Score | # of Audits (last 2 years) |
| ---------- | ---------- | -------------------------- |
| Low        | 95         | Less than 2                |
| Medium     | 70         | 1                          |
| High       | 50         | None                       |

#### **Protocol’s Exploits**

This quantifies the protocol's historical vulnerability to hacks and exploits. Two or more hacks result in a **high-risk** rating, one hack is a **medium** **risk**, and no hacks indicate a **low risk**.

| Risk Level | Risk Score | # of Exploits |
| ---------- | ---------- | ------------- |
| Low        | 95         | None          |
| Medium     | 70         | 1             |
| High       | 50         | < 2           |

#### **Protocol’s Exploits for Current Version**

This metric specifically examines the security of the protocol's latest version. Like the previous metric, two or more hacks result in a **high-risk** rating, one hack is a **medium risk**, and no hacks imply a **low risk.**

| Risk Level | Risk Score | # of Exploits |
| ---------- | ---------- | ------------- |
| Low        | 95         | None          |
| Medium     | 70         | 1             |
| High       | 50         | < 2           |

#### **Protocol’s Maturity**

This parameter inspects the protocol's historical performance and duration on the mainnet, serving as an indicator of its reliability and robustness. A protocol that has successfully operated for more than two years is deemed **low-risk**, proving its efficacy and resilience across various scenarios. A lifespan of over one year but less than two falls into the **medium risk bracket**, while a protocol in operation for less than a year is categorized as **high-risk** for potential investors.

| Risk Level | Risk Score | Maturity in Years |
| ---------- | ---------- | ----------------- |
| Low        | 95         | More than 2 years |
| Medium     | 70         | From 1 to 2 years |
| High       | 50         | Less than 1 year  |

#### **Protocol’s Liquidity (TVL)**

The trust and confidence users place in a protocol are directly correlated with the amount of capital they're willing to deposit into it, quantified by the Total Value Locked (TVL).

This metric represents the summation of assets secured in the protocol's smart contracts. A higher TVL suggests a lower risk of the protocol being abandoned or exploited, with protocols boasting a TVL exceeding 100,000,000 USD considered **low-risk.**

Conversely, a TVL below 10,000,000 USD indicates a **high-risk** protocol characterized by insufficient aggregate liquidity. Any TVL falling between these thresholds is classified as **a medium risk**.

| Score  | Risk Score | Protocol’s TVL in $ |
| ------ | ---------- | ------------------- |
| Low    | 95         | > $100M             |
| Medium | 70         | $10M - $100M        |
| High   | 50         | < $10M              |

### **Assets’ Level Risks**

In our ongoing commitment to provide the highest standard of risk assessment for assets, we have integrated [Certik Skynet's](https://skynet.certik.com/) risk assessment scores into our evaluation process. Certik, our esteemed audit partner, offers a robust and comprehensive risk assessment through their Skynet platform. By leveraging Certik's expertise, we ensure a reliable and objective evaluation of asset risks.

<figure><img src="https://1860647509-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2F5krs19p7CDGKHkgn1b6T%2Fuploads%2F6hsrpCw5qdMTdEjY3qA7%2Fimage.png?alt=media&amp;token=60c2ceb3-0d2f-4c0b-a17a-c94aa8cc97ac" alt=""><figcaption><p>USDC risk assessment on Certik Skynet  </p></figcaption></figure>

For assets that are not yet assessed by Certik Skynet, we utilize  framework to calculate the risk score. This dual approach allows us to maintain consistency and accuracy in our assessments, ensuring that all assets, regardless of their Certik Skynet status, are thoroughly evaluated.&#x20;

These risks are inherent to the assets employed in investment strategies. This risk category conducts a comprehensive evaluation, starting with the market capitalization of the assets to gauge their popularity and extent of usage.

It meticulously measures the assets' volatility, taking into account their unique characteristics. Additionally, this group scrutinizes the intrinsic value or collateralization of assets and delves into the potential risks embedded in the assets' smart contracts.

| Assets’ Risk                                      | Meaning                                                                       | Weight in percentage |
| ------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------- |
| Market capitalization of assets                   | Considers assets market capitalization as a sign of trust from users          | 25%                  |
| Volatility of an asset                            | Assess how volatile an asset has been in the past period                      | 25%                  |
| Intrinsic value of the asset or collateralization | Evaluate assets’ value based on their intrinsic use case or collateralization | 25%                  |
| Code quality of the asset                         | Assess assets’ code vulnerabilities                                           | 25%                  |
| Overall                                           |                                                                               | 100%                 |

#### **Asset’s Market Capitalization**

This score is a reflection of the asset’s market size and its establishment, derived from its total market capitalization.

Market cap, as a crucial metric, indicates the combined value of the asset's circulating supply, calculated by multiplying the asset's current price by its circulating units. The asset’s market cap is directly proportional to its popularity, demand, and liquidity, further providing insights into its potential trajectory of growth or decline. Generally, a higher market cap is synonymous with a lower risk of illiquidity or instability.

For assets with a market cap below 100 Million USD, the risk is deemed **high**. Conversely, a market cap exceeding 1 Billion USD is indicative of a **low-risk asset**. Any value between these two extremes is categorized as having **medium risk**.

| Risk Level | Risk Score | Market Capitalization in $ |
| ---------- | ---------- | -------------------------- |
| Low        | 95         | > $1B                      |
| Moderate\* | 80         | $100M - $1B                |
| Medium     | 70         | $1M - 100M                 |
| High       | 50         | < $1M                      |

\**for this type of investment we include a **moderate risk level** which constitutes 80% to make a risk assessment more accurate.*

#### **Asset’s Volatility**

This parameter refers to the asset's price fluctuations, crucial in ascertaining the safety associated with possessing the asset. Should the asset exhibit significant price fluctuations exceeding 100% within a week over the past year, it is labeled high risk.

On the other hand, if the fluctuations are contained within 50% of the asset's price in a similar timeframe, the risk is low. Any deviation between these two benchmarks is assigned a **medium** risk grade.

In the case of stablecoins, the rules diverge. A fluctuation beyond 1% earmarks the stablecoin as **high risk**, while a variation below 0.1% is classified as **low risk**. Anything in between these two thresholds is deemed **a medium risk**.

| Risk Level | Risk Score | Weekly Volatility (assets) | General Volatility (stablecoins) |
| ---------- | ---------- | -------------------------- | -------------------------------- |
| Low        | 95         | < 50%                      | > 0.1%                           |
| Medium     | 70         | 50-100%                    | 0.1%-1%                          |
| High       | 50         | > 100%                     | < 1%                             |

#### **Asset’s Intrinsic Value**

This risk parameter evaluates the asset's value based on its intrinsic use case or collateralization. Intrinsic value refers to the value an asset derives from its inherent properties or utility, such as its role as a native token within a blockchain or a protocol.

On the other side, an asset can be collateralized, implying that its value is secured or redeemable by another asset, like synthetic tokens, stablecoins, liquid staked tokens, or others.

A higher degree of intrinsic value or over-collateralization significantly diminishes the risk of the asset losing its value or becoming obsolete. Assets that serve as native tokens within a blockchain boast a high intrinsic value since they are integral to transactions, staking, and governance processes. Consequently, these assets are labeled as **low risk.**

Similarly, assets that function as native governance tokens within a protocol derive their intrinsic value from their utility in staking, fee coverage, or other functionalities, placing them in the **medium risk** category.

For assets that are not native tokens but are fully collateralized, the risk of liquidation is mitigated, thus conferring a **medium risk** status. Conversely, assets that lack full collateralization bear a **high-risk** grade and are susceptible to potential default risks.

| Risk Level | Risk Score | Intrinsic Value                |
| ---------- | ---------- | ------------------------------ |
| Low        | 95         | A native token                 |
| Medium     | 70         | Not native, but collateralized |
| High       | 50         | Not a native token             |

#### **Asset’s Code Quality**

This metric critically assesses the asset's code quality, pinpointing potential vulnerabilities that may exist within the contract itself. This assessment spans three essential fields: **Asset Owner, Liquidity, and Contract Parameters.**

Should the asset demonstrate impeccable code integrity with zero potential risks identified, it earns a **low-risk** grade. However, if one to two potential concerns arise across these three pivotal fields, the asset is assigned a **medium risk** status. Conversely, the unearthing of three or more potential issues catapults this parameter into the **high-risk** category.

| Risk Level | Risk Score | Found vulnerabilities |
| ---------- | ---------- | --------------------- |
| Low        | 95         | None                  |
| Medium     | 70         | 1-2                   |
| High       | 50         | More than 3           |

### **Pool Level Risks**

Here are the risks that emerged from the details of the pool: **Liquidity in the pool, Impermanent loss, and Blockchain details**, which are used to host the pool. All these details are used to assess the risk of the pool.

| Pool Risk                       | Meaning                                                             | Weight in percentage |
| ------------------------------- | ------------------------------------------------------------------- | -------------------- |
| Pool’s Total Value Locked (TVL) | Assess the amount of assets locked in the investment strategy pool. | 33%                  |
| Impermanent loss                | Assess if the pool is subject to impermanent loss or not.           | 33%                  |
| Blockchain Maturity             | Assess the maturity of the blockchain that hosts the pool.          | 16.7%                |
| Blockchain Reliability          | Assess the reliability of the blockchain that hosts the pool.       | 16.7%                |
| Overall                         |                                                                     | 100%                 |

#### **Pool’s Total Value Locked (TVL)**

The trust and confidence users place in a pool are directly correlated with the amount of capital they're willing to deposit into it, quantified by the Total Value Locked (TVL).

This metric represents the summation of assets secured in the protocol's smart contracts for a particular pool. A higher TVL suggests a lower risk of the protocol being abandoned or exploited, with protocols boasting a TVL exceeding 10,000,000 USD considered **low-risk**.

Conversely, a TVL below 1,000,000 USD indicates a **high-risk** protocol characterized by insufficient aggregated liquidity. Any TVL falling between these thresholds is classified as **a medium risk**.

| Risk Level | Risk Score | Pool TVL  |
| ---------- | ---------- | --------- |
| Law        | 95         | < $10M    |
| Moderate   | 80         | $1M-10M   |
| Medium     | 70         | $500K- 1M |
| High       | 50         | > $100K   |

\**for this type of investment we include a **moderate risk level** which constitutes 80% to make a risk assessment more accurate.*

#### **Impermanent Loss**

This risk parameter checks if the pool is subject to impermanent risk, which is the loss of value that occurs when the price ratio of the assets in the pool diverges from the initial ratio.

If the pool is not exposed to impermanent loss then it has a **low risk** grade, if it is exposed to impermanent loss then it has a **medium** **risk** level.

| Risk Level | Risk Score | Impermanent Loss |
| ---------- | ---------- | ---------------- |
| Law        | 95         | Not exposed      |
| Medium     | 70         | Exposed          |

#### **Blockchain Maturity**

This risk type evaluates how battle-tested is. This risk parameter evaluates how long the blockchain has been live on the mainnet without any major issues or incidents.

An immature blockchain could have unresolved issues or vulnerabilities that could compromise its performance and security in the future. If the blockchain is live for more than 2 years then it is graded **low risk**, if it is live for less than a year, then it has a **high risk** level grade. Anything in between these is graded as **medium**.

| Risk Level | Risk Score | Maturity in Years |
| ---------- | ---------- | ----------------- |
| Low        | 95         | More than 2 years |
| Medium     | 70         | From 1 to 2 years |
| High       | 50         | Less than 1 year  |

#### **Blockchain Reliability**

This risk parameter measures the blockchain’s reliability by evaluating how many times the network has halted over the last year. A network halt is an event that causes the blockchain to stop producing new blocks or validating transactions.

If there were no halts in the last year, then this parameter is considered as **low risk**, if there were 1 or 2 halts then it has a **medium risk** grade. If there have been 3 or more then this parameter gets a **high-risk** grade.

| Risk Level | Risk Score | Halts |
| ---------- | ---------- | ----- |
| Low        | 95         | 0     |
| Medium     | 70         | 1-2   |
| High       | 50         | < 3   |

### Conclusion

Concluding our in-depth exploration of DeFi and Notum's innovative Risk Assessment Framework, this guide serves as a vital resource for navigating the dynamic and complex world of decentralized finance. Whether assessing the nuances of staking crypto or understanding the essentials of risk management in crypto investments, Notum provides the tools and insights needed for informed decision-making. With a focus on protocol, asset, and pool risks, and an understanding of good risk-reward ratios, our comprehensive guide empowers both new and seasoned investors to optimize their strategies in the ever-evolving crypto landscape.

<details>

<summary><strong>Is There a Risk to Staking Crypto?</strong></summary>

Staking crypto involves several risks, notably including validator risks, where the staked assets might be penalized if the validator fails to perform its duties correctly, and platform risk, which relates to the security and stability of the staking platform itself.

</details>

<details>

<summary><strong>What is Risk Management in Crypto?</strong></summary>

Risk management in crypto involves identifying, assessing, and mitigating risks associated with cryptocurrency investments. This includes strategies like diversification, setting stop-loss orders, understanding asset volatility, staying informed about market trends, and employing security measures against theft and fraud.

</details>

<details>

<summary><strong>What is a Good Risk-Reward Ratio in Crypto?</strong></summary>

A good risk-reward ratio in crypto depends on an investor's risk tolerance and investment strategy. Generally, a ratio of 1:3 or higher is considered favorable, meaning the potential reward is at least three times the potential risk. However, more conservative investors might prefer a higher ratio, while risk-tolerant traders might accept lower ratios for higher potential returns.

</details>

<details>

<summary><strong>Does Staking Crypto Have Risk?</strong></summary>

Yes, staking crypto carries risks, including market risk, liquidity risk, and smart contract risk. Market risk involves the volatility of the staked asset's value, liquidity risk pertains to the ease of converting staked assets back to liquid funds, and smart contract risk refers to potential vulnerabilities in the staking protocol's code.

</details>

<details>

<summary><strong>Does Notum Provide Tailored Risk Assessments for Different Types of DeFi Investors?</strong></summary>

Notum's RAF is designed to cater to a diverse investor base, providing detailed risk assessments that can be interpreted and utilized according to individual investment strategies and risk tolerances.

</details>

<details>

<summary><strong>How is Impermanent Loss Risk Assessed in Notum's Framework?</strong></summary>

Impermanent loss and other pool-specific risks are assessed through a thorough examination of liquidity dynamics, pool composition, and the underlying blockchain's performance and stability.

</details>


# Risk Assessment Example

Below is a risk assessment framework using Yearn's strategy with CRV tokens on Notum, aimed at DeFi investors with moderate knowledge who are open to taking calculated risks for potential rewards

## Yearn.finance | Risk Report Example

### Quick Overview

* TVL: $344.5m
* Market Cap: $477.32m
* Chains: [Ethereum](https://ethereum.org/en/),[ Optimism](https://www.optimism.io/), [Fantom](https://fantom.foundation/), [Arbitrum](https://arbitrum.io/), [Base](https://base.org/)
* Risk Level: Medium to High
* Foundation Date: Jul, 2020

[Yearn Finance](http://yearn.finance/) is a hub of various DeFi products such as vaults, a lending aggregator, zap in/out solution, and DeFi insurance. Yearn is managed by multiple independent developers and is governed by $YFI holders making sure that yield generation is truly decentralized. Yearn Finance is in top 5 yield aggregators by TVL.&#x20;

<figure><img src="https://lh7-us.googleusercontent.com/fB8raCOpGyL2AMlOOAdTXs0VDhlOOvskFVnlGK74_4QNlRfTo-pJXzggSlFv4kZ5TPL3UZONKEdO2nwN5_J2USp4cS4Wg9w7ssNQ4PXZ0GrosrIWSZ8zLYwtX1bQy_esAo8aQujKe38toFWuQOkNp5Q" alt=""><figcaption><p>Source: <a href="https://defillama.com/protocols/yield%20aggregator">DeFiLlama.com</a></p></figcaption></figure>

The core product of Yearn is yVault, which provides automated yield generation to many different crypto assets and shares are represented by yvTokens or yTokens. This is yVaults V2 allowing to execute several strategies at the same time. It also accepts individual tokens or liquidity provider tokens as deposits.

The vaults take two types of fees:

1. a performance fee of 20% (which is split between the project’s treasury and the strategist);
2. a management fee of 2% (which goes to the treasury).&#x20;

Because Yearn is a permissionless yield aggregator, anyone with the right skills can apply to become a strategist.&#x20;

### Risk Dimensions

* Protocol risks: all risks related to vulnerabilities of the protocols. These risks are fundamental as they cover all the investment options provided by this protocol, thus it should be considered when assessing the risk of any single investment provided by the protocol.
* Assets risks: risk that stems from assets that are involved in the strategy. We calculate the risk of all assets that are used in the strategies that are displayed on the platform. If there are several assets involved in the strategy the average of these assets is used for calculating the overall investment risk.
* Pool risks: risks that stem from the details of the pool. Such as Liquidity in the pool, Impermanent loss, and blockchain details, which are used to host the pool. All these details are used to assess the risk of the pool.

### ​​Risk Levels

There are 3 risk levels and 6 different risk grades that you will find on the Notum Platform: A, B, C, D, E, and F.

* A and B grades refer to good, low-risk investments;
* C and D grades refer to average investments that might have several drawbacks or minor issues with some of the components;
* E and F refer to risky investments, which might have some significant issues.

### yCRV Yield Strategy Risk Assessment

#### Strategy Explained

One of the Yearn’s core offering is [yCRV](https://docs.yearn.finance/getting-started/products/ycrv/overview) which is a derivative of veCRV that can be staked to get st-yCRV. st-yCRV holders receive admin fees earned by Yearn’s veCRV position, which is used to get more yCRV.&#x20;

yCRV is the base-token, and it goes without rewards, but it lets users easily enter into the other' activated' tokens that have.

<figure><img src="https://lh7-us.googleusercontent.com/Vuqfx4zI-ivcRMUjZrn4Um4MlicZMOycQomguReWYbAjMQdDu-z_B4yKtrqdox91OyU5UVM7O3hBj-b6LdAZHel5DQ3bQCVGxmsr07GainVfc5v2teksASoYqZxzTO6_Ar_3RDGWXV90p2vPxVBRGns" alt=""><figcaption><p>Source: <a href="https://docs.yearn.fi/getting-started/products/ycrv/overview">Yearn.fi Docs</a></p></figcaption></figure>

Holders of the yCRV derivative token can become an LP for the CRV/yCRV pool, getting lp-yCRV tokens to gain fees. The liquidity pool rewards are distributed and compountedb in CRV, and then sent back to the pool to boost the LP position over time.&#x20;

Similar to st-yCRV, for every 1 yCRV converted to the lp-yCRV derivative token attains 1 veCRV worth of voting power to vote in favor of the yCRV Curve gauge.&#x20;

The more votes there are for the yCRV gauge, the larger the amount of CRV emissions that will be directed to the CRV/yCRV pool, resulting in higher yields for lp-yCRV token holders.&#x20;

The strategy is quite straighforward:

* Exchange CRV for st-yCRV on Yearn to gain staking rewards;
* Convert st-yCRV into yCRV LP tokens in Yearn to use them to farm CRV emissions and trading fees;
* Get your CRV back in Curve to get back the original token.&#x20;

#### Strategy Risks

Let’s break down the following strategy presented on [Notum](https://app.notum.ai/?mtm_campaign=chcqiorw\&mtm_cid=hfkoglob\&mtm_source=landing\&mtm_medium=button) using key dimensions we’ve mentioned above.

#### Protocol Risk for yCRV Staking Pool

Curve Finance is one of the largest DeFi protocols in terms of TVL with a value of $1.698 b. This protocol is exposed to risks linked to decentralized exchanges (DEXs), such as impermanent loss.&#x20;

Curve’s automated market maker (AMM) technology is specialized to provide trades between highly correlated assets like two stablecoins. This minimizes price impact while trading. It is currently the main protocol to trade stablecoins.

Yearn.finance is the top DeFi yield aggregator with a TVL of around $328.99 m. This protocol is open to risks connected to yield optimizers which applies custom strategies to automatically maintain user funds. Yearn reinvests any available rewards directed to the pool to help you maximize your yield.

| Protocol Risk                           | Score explanation                                              | Actual Risk Score | Weight in percentage |
| --------------------------------------- | -------------------------------------------------------------- | ----------------- | -------------------- |
| Protocol Audits                         | Overall protocol passed 3 Audits                               | 95                | 16.7%                |
| Protocol Audits in the Last 2 Years     | 2 Audits passed in the last 2 years.                           | 95                | 16.7%                |
| Protocol’s Exploits                     | There was 1 exploit in 2023 that resulted in the loss of $11M. | 70                | 16.7%                |
| Protocol’s Exploits for Current Version | There was 1 exploit in 2023 that resulted in the loss of $11M  | 70                | 16.7%                |
| Protocol’s Maturity                     | The protocol has been running for more than 2 years            | 95                | 16.7%                |
| Protocol’s Liquidity (TVL)              | Protocol overall liquidity exceeds $300M                       | 95                | 16.7%                |
| Overall                                 |                                                                | 86.6              | 100%                 |

#### Assets’ Risk for yCRV Staking Pool

[CRV](https://notum.ai/assets/curve-dao-token) is a low-cap asset with a fixed supply. yCurve is issued 1:1 to CRV and it represents CRV locked within Yearn. The value of CRV is exposed to fluctuation, and as a matter of logic, yCRV mimics the pattern. Besides, you, as an investor, may experience technical or/and operational issues from both — Yearn and Curve protocols.

| Assets’ Risk                                      | Score explanation                                                                              | Actual Risk Score | Weight in percentage |
| ------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------- | -------------------- |
| Market capitalization of assets                   | Asset’s capitalization is above $1M.                                                           | 70                | 25%                  |
| Volatility of an asset                            | There has been significant price fluctuation in the last year exceeding 100% in the last year. | 50                | 25%                  |
| Intrinsic value of the asset or collateralization | The asset is used as a utility in the Yearn and Curve ecosystems.                              | 70                | 25%                  |
| Code quality of the asset                         | There are no detected vulnerabilities in the asset.                                            | 95                | 25%                  |
| Overall                                           |                                                                                                | 71.25             | 100%                 |

#### Pool Risk for yCRV Staking Pool

The following pool is suitable for investors who are looking for long-term CRV exposure. This pool performs well when there is enough liquidity to trade between yCRV and CRV. The main risks here are that yCRV might lose its peg to CRV given the limited liquidity available on Curve and an impermanent loss scenario. It’s also subject to price fluctuations, as it’s exposed to its native asset.

<table><thead><tr><th width="186">Pool Risk</th><th>Score Explanation</th><th width="151">Actual Risk Score</th><th>Weight in percentage</th></tr></thead><tbody><tr><td>Liquidity of the pool (TVL)</td><td>Exceeds $20M</td><td>95</td><td>33%</td></tr><tr><td>Impermanent loss</td><td>No Impermanent Loss</td><td>95</td><td>33%</td></tr><tr><td>Blockchain Maturity</td><td>Pool is based on the Ethereum blockchain which has operated for more than 4 years.</td><td>95</td><td>16.7%</td></tr><tr><td>Blockchain Reliability</td><td>The pool is based on the Ethereum blockchain which has had no halts or issues in the last year.</td><td>95</td><td>16.7%</td></tr><tr><td>Overall</td><td></td><td>95</td><td>100%</td></tr></tbody></table>

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The overall Risk Score for this pool is calculated using the received scores, meaning that we calculate an average of Protocol Risk, Asset Risk, and Pool Risk. To put this in numbers, total risk equals to (86.6 + 71.25 + 95) / 3 = 84.2.

Based on [Notum’s risk assessment framework](/risk-assessment/risk-assessment-framework), this constitutes to B Grade, Low Risk investment.

### Final Thoughts

Yearn represents a trust worthy decentralized yield aggregator that empowers its users to earn passive income by depositing assets and receiving yield. In our particular case, this is achieved by gaining an enhanced yield when locking CRV tokens with Notum.

This CRV startegy has some risks. Although the strategy is rather simple, yet it demands some understanding of how DeFi operates. It involves a 90-day locking period, so rewards are paid out at the end of this period.&#x20;

Notum considers CRV on Yearn as an investment for an investor with a medium understanding of DeFi and yielding, who is willing to take on some risk in exchange for an interesting reward on CRV.

### FAQs

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<summary>Is Yearn Finance a Good Investment?</summary>

Yearn Finance is considered a good investment with low risk, particularly for those seeking stable and consistent returns in the DeFi space.

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<summary>What is ST-yCRV and yCRV?</summary>

ST-yCRV and yCRV represent notable tokens in DeFi, with ST-yCRV being a staked version of the yCRV token. yCRV is linked to Yearn Finance's yield farming strategies, offering investors exposure to various DeFi yields. ST-yCRV, on the other hand, indicates a staked form of yCRV, often providing additional benefits like governance rights or enhanced yields. Both tokens are pivotal for savvy DeFi investors seeking diversified yield opportunities in the cryptocurrency landscape.

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