The Pulse: Crypto Risk Review

Update*: Update: IntoTheBlock has officially become Sentora! Following our merger with Trident Digital, we’re set to build the next phase of institutional DeFi. Stay tuned as we roll out our new brand across products like Risk Radar and Risk Pulse. Read the full merger announcement* here*.*

Welcome to Crypto Risk Review, your concise and clear resource for quickly understanding and navigating crypto and DeFi market risks. Each edition provides a snapshot of critical risk factors and actionable insights derived from Sentora’s DeFi Risk platforms.

TL;DR:

• High risk loans surge with over $1B increase
• Available Liquidity for stables drops by more than 13%
• New Aave Markets for Pendle assets have seen $800M in inflows but holders should be aware of liquidity risks
• We Help You Understand How To Use Sentora’s Risk Pulse
• LRT netflows continue to grow, indicating confidence in EigenLayer post slash updates

### Risk Pulse and Radar Highlights

Bullish Sentiment => Increased Stablecoin Demand

Sentora Risk PulseWith bullish sentiment returning and the prices of ETH and BTC pumping 37% and 9% respectively in the last week, leveraged positions have been flooding into the market. Users are borrowing all available stablecoins across all lending markets to leverage their positions to try and capture the upswing in prices. This of course means that increased risk is accumulating in the market and should be monitored by users in leveraged positions.

• Available liquidity for stables has dropped 13% in the last two weeks
• High-risk loans (within 5% of liquidation threshold) have increased by over $1B
• Users that are borrowing stables for strategies should monitor closely the increases in borrow rates and how they affect their positions

Recurring Depegs (reUSD)

An alert that has been popping up frequently in the Risk Pulse feed is the depeg alert of reUSD across its Curve pools. Exploring the Curve Risk Radar indicators further shows that the asset experiences regular depegs that usually last less than 10 hours. While this does indicate that the mechanisms in place to restore the reUSD peg are working, depegs that last for over an hour are important for users to monitor when deploying strategies, as it is key to prevent immediate losses from poor market environment during the execution.

Curve Risk Radar

• reUSD pools have decent sized TVL and high APRs that can make the LP strategies attractive for users
• However entering or exiting these pools during a depeg can result in offsetting all returns from pool rewards due to losses
• Tracking liquidity is important as TVL trends down, losses due to a potential depeg can be exacerbated based on the share of the

Current Event Risks

Outstanding Principle Tokens from Pendle Pools

Aave Risk Pulse* The launch of Pendle Principal Token (PT) pools on Aave v3 has been a tremendous success with over $800M in supplies coming into the two markets

• However there is a growing risk that the amount of PTs outside of the liquidity pool on Pendle can result in an event where users have no liquidity to swap their PTs back to the underlying asset

Etherscan* In the screenshot we see that there is 12M PT in the Pendle pool that can be swapped back to the underlying asset

• There is an additional ~12M in Pendle’s off-chain orderbook, amounting to ~24M in PT liquidity
• However we can see that in just the two contracts with the largest holdings (Aave and Morpho) there is almost 380M in PT
• If an event occurs where large numbers of users are trying to unwind their positions at once, there will be a shortfall in liquidity
• As selling pressure increases the prices of the PT will drop, potentially exposing users to liquidations or losses if they exit the PT early

Boyco Unlocks Pt. 2: The Unlockening

Source: * On May 6, Boyco vaults unlocked on Berachain but many vaults had withdrawal delays

• The full impact is now being realized with over $2B in TVL outflows
• As stated in the previous Pulse, strategy capacities, APRs, and costs to assemble/disassemble will have high volatility which can impact a strategies overall returns

LBTCweETH * This volatility can be seen in some of the assets such as LBTC and weETH that had large amounts of TVL in Boyco vaults

• While this peg volatility will likely subside as the vaults unwind, it adds an extra risk that users looking to enter or exit a position should monitor

Feature: Risk Pulse

As one of Sentora’s new risk products, the Risk Pulse is a tool meant to help users stay up to date on risks across the entire DeFi ecosystem. It is rare to have a DeFi strategy that has risk isolated to only one protocol and asset, therefore it is key for users to have risk information on all the protocols and assets that their position touches. The Risk Pulse is designed to be the leading edge of a larger risk management strategy by alerting users to potential events that can impact their deployments.

Below we highlight some of the ways in which the Risk Pulse can be utilized by DeFi users.

Discovery

New Pools

Aave Risk Pulse* ATH notifications can alert you to new markets in lending and DEX protocols

• This can help users quickly identify new strategies or new risk exposures to improve portfolio rebalancing

Exposure

Borrow Rate Spikes and Locked Supply

Euler Risk Pulse* Large available liquidity changes can alert users to potential rate spikes that affect leverage strategies

• For lenders a 25% drop in available liquidity can indicate a tighter window for exiting their assets supplied to that pool

Stay informed, manage risks wisely, and stay liquid

Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice.

The Pulse: Crypto Risk Review was originally published in Sentora on Medium, where people are continuing the conversation by highlighting and responding to this story.