Leveraged Portfolios
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 their funds for leveraging and get exposed to a high-reward / higher-risk yield farming scenario. Leverage portfolios act as a leveraged coverage provider and offer a much higher APY than regular coverage provision. 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.
A simple way to think about leveraged portfolios is that any capital which is deposited in them is simultaneously deployed:
  • Multiple times in a single pool (tall leverage)
  • In multiple separate pools (wide leverage)
This enables users to be received yield from all the pools where the money is deployed as well as to receive more yield per USDT deposited from a single pool. It is important to point out, that this also exposes users to extra risk.
What are the core benefits of leveraged portfolios?
  • A lot cheaper insurance for policyholders
  • A lot higher APY for liquidity providers in the leveraged portfolios
How many leveraged portfolios are there?
During the launch of V2 only one leveraged portfolio will be deployed. Later on, we envision having multiple portfolios with different risk configurations.
How risky is the leveraged portfolio?
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.
Isn't this very risky?
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.
Where can I see the MPL for the leveraged portfolios?
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.
What is the APY of the leveraged portfolios?
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 users to gauge the risk/reward balance of each leverage portfolio and decide if and where they want to deploy their capital.
What is the leveraged portfolio capacity?
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.
Won't leverage run the risk of making the protocol insolvent or even worse illiquid?
We have made a great deal of effort to ensure that this new functionality keeps the protocol fully solvent AND liquid. That being said, with every new functionality (especially as complex as leverage) comes the risk of errors and unforeseen consequences.
How do leveraged portfolios affect policyholders?
They don't, they will just make purchasing new cover a lot cheaper for new policyholders.
Last modified 1mo ago
Copy link