Exercise 8: Advanced Risk Management Framework

⏰ Time Investment: 60 minutes 🎯 Goal: Build a comprehensive risk management system for your LP portfolio

📚 Required Reading Integration 📖 Primary: Lesson 8: Risk Management and Hedging Strategies 📖 Supporting: Lesson 3: Impermanent Loss and Risk Fundamentals

🛡️ Phase 1: Risk Assessment (20 minutes)

Hedging Strategy Calculator

Portfolio Risk Assessment Dashboard

Portfolio Risk Analysis

Your Current Portfolio: $_____

Position Breakdown:

Position	Capital	% of Portfolio	Pair	Volatility	IL Risk	Status
1	$_____	_____%	_____	_____	_____	_____
2	$_____	_____%	_____	_____	_____	_____
3	$_____	_____%	_____	_____	_____	_____
4	$_____	_____%	_____	_____	_____	_____

Risk Assessment:

• Total at risk: $_____

• % of portfolio: _____%

• Within limits? _____ (Yes/No)

• Diversified? _____ (Yes/No)

Risk Limit Framework

Set Your Limits:

Per Position: Max _____% of portfolio Per Protocol: Max _____% of portfolio Per Chain: Max _____% of portfolio Per Pair Type:

• Stablecoins: Max _____%

• Correlated: Max _____%

• Volatile: Max _____%

Total LP Exposure: Max _____% of portfolio Reserve Capital: Min _____% of portfolio

🔄 Phase 2: Hedging Strategy Design (20 minutes)

Delta Hedging Analysis

Exercise 1: Calculate hedging needs

Position: $20,000 ETH/USDC LP

• ETH exposure: $10,000 (50% of position)

• Current ETH price: $2,000

Hedging Strategy:

• Borrow ETH: _____ ETH

• Sell for USDC: $_____

• Net delta: _____ (neutralized)

Cost-Benefit:

• LP fees (monthly): $_____

• Borrowing cost: $_____

• Net yield: $_____

• APY: _____%

Is hedging worth it? _____ (Yes/No) Why? _________________________________

Options Hedging Strategy

Exercise 2: Design protective put strategy

Position: $20,000 ETH/USDC

• Current price: $2,000

• Put strike: $_____ (_____% below)

• Put cost: $_____ (_____% of position)

Protection Analysis:

• If ETH drops to $1,600:

  • LP loss: $_____

  • Put profit: $_____

  • Net loss: $_____ (just put cost)

If ETH stays above strike:

• LP: Normal returns

• Put: Expires worthless

• Net: -$_____ (put cost)

Is this worth it? _____ (Yes/No)

📊 Phase 3: Risk Monitoring System (15 minutes)

Monitoring Dashboard Setup

Daily Metrics:

• Total portfolio value

• Fees earned (by position)

• IL by position

• Net PnL

• Price vs. ranges (V3)

Weekly Metrics:

• Return by protocol

• Return by pair

• Risk limit compliance

• Best/worst performers

Monthly Metrics:

• Total return vs. benchmarks

• Strategy effectiveness

• System improvements needed

Alert System

Set Alerts For:

• IL exceeds fees (losing money)

• Price exits range (V3)

• Position exceeds risk limits

• Gas costs exceed fees

• Portfolio value drops >10%

Alert Thresholds:

• IL alert: _____%

• Range exit: _____% from boundary

• Risk limit: _____% of portfolio

• Value drop: -_____%

🎯 Phase 4: Risk Management Protocol (15 minutes)

Decision Framework

When IL Exceeds Fees:

• Calculate break-even time

• Assess if temporary or permanent

• Decision: _____ (Wait/Withdraw/Hedge)

When Price Exits Range (V3):

• How far out? _____%

• Expected return time? _____

• Gas cost to rebalance? $_____

• Decision: _____ (Wait/Rebalance/Withdraw)

When Risk Limits Exceeded:

• Which limit? _____

• By how much? _____%

• Action: _____ (Reduce/Close/Reallocate)

Emergency Protocol

If Portfolio Drops >20%:

If Major Protocol Exploit:

If Extreme Volatility:

📚 Next Steps

• Implement risk monitoring system

• Set up alerts

• Review positions weekly

• Adjust risk limits as needed

• Review Lesson 9 for advanced protocols

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← Back to Lesson 8 | Next: Exercise 9 →