The Risk Protocol

In the last few weeks, thousands of new users have joined The Risk Protocol, so here is who we are and what we are building. Every great market grows up the same way: it learns to trade an asset, then to lend against it, and finally to split the asset's risk and hand each piece to whoever wants it. Crypto has barely begun that last stage, the risk layer, and we are building it 🧵

We are in Mumbai for Devcon this week. We are building the Risk Layer of Crypto, starting with SMART Tokens. SMART Tokens use options to transform BTC and ETH into novel payoff profiles while being fully collateralized, with no liquidations, margin calls or funding: docs.riskprotocol.io Market maker, LP, trader, or just curious about risk? We would love to meet in person. Hit us up on Telegram: t.me/j4jeswin

The Fed held rates yesterday, as expected, but two of its twelve members wanted a hike. BTC and ETH rose after the decision, then gave it all back overnight. The week’s second big event is tomorrow, when more than $10b of BTC options expire on Deribit, about a third of all the BTC options open there. Traders are still leaning in: as BTC and ETH slipped over the past week, futures traders added to their positions. Nobody knows how the market will take the expiry, but a rush of repositioning around it could move prices fast, and fast moves are what turn leverage into liquidations. Weeks like this are what RiskOFF and RiskON are built for. Our new epoch opened on Monday with its floor 5% below the opening price as usual and its cap about 5% above. Between those strikes, both tokens track the underlying. Beyond them, RiskOFF stops at its floor or its cap, while RiskON keeps going at about 2x, with no funding, margin calls, or liquidations. The image shows what that looks like if BTC moves 20% up or down this epoch. It played out in the last epoch that settled on Monday: ETH fell 13%, RiskOFF ETH stopped at its 5% floor, and RiskON ETH fell 21%. So a week like this does not have to be a bet on one outcome. Someone wary of the expiry could hold RiskOFF through it, with its floor limiting the fall, and could look at RiskON if the market comes through well and climbs toward the cap. Timing that switch is hard, so it may be worth practicing before it counts. That is what our testnet is for. In our Trading Competition, you trade RiskON and RiskOFF on BTC and ETH. You are scored on profit and risk control, and the top 100 earn RISK Points. In our Risk Mode Contest, you call RiskON or RiskOFF Mode on BTC and ETH every day. The longest streak of correct calls wins. Both run until 13 November, so there is still time to make it count. app.riskprotocol.io/dashboar…

ETH broke the floor. RiskOFF held its ground. ETH has fallen about 11% since our current RiskON/RiskOFF epoch opened on 26 September, as US spot ETH funds saw more than $1 billion in net outflows in October, already their heaviest month of outflows this year. Over the same stretch, RiskOFF ETH is down a little under 5%, and RiskON ETH is down about 18%. Both were split from the same ETH on the same day, so the gap between them shows exactly what each half is built to do. RiskOFF is the low-risk half, with a built-in floor 5% below where the epoch opens and a cap about 6% above it this epoch. ETH first slipped through that floor at $2,557 on 7 October, has stayed below it since 12 October, and has now spent almost half the epoch’s hours under it. Once ETH is below the floor, RiskOFF stops following it down, and its loss holds at 5%. RiskON is the leveraged half, and it carries the fall that RiskOFF does not, at about 2x beyond the floor. That is the trade it signs up for, because it also keeps about 2x of every move above the cap. Neither half is better than the other; they are two halves of the same ETH, built for two different views of where it goes next. This epoch settles on Monday at 00:00 UTC. Unless ETH rallies about 7% from here to get back above $2,557, RiskOFF ETH settles at its floor, 5% down, and Deribit activity puts the odds of ETH finishing below the floor at about 90%. A new epoch then opens with fresh strikes around Monday’s price, and both tokens start again at half the value of ETH each. So the question for ETH holders is how to hold it into the next epoch. If you expect more of this selling, RiskOFF keeps you in with a floor 5% below Monday’s open. If you think the selling has run its course, RiskON gives you about 2x beyond the new cap, with no funding, margin calls, or liquidations. If you cannot tell yet, hold RiskOFF through the uncertain part and rotate into RiskON as ETH climbs toward the cap. Test your hypothesis on app.riskprotocol.io and learn to use a new primitive before trading with real money as we build toward our mainnet launch.

More than 1,000 startups applied to the @token2049 NEXUS Startup Competition this year. The field narrowed to a Top 50, and The Risk Protocol was one of the 10 finalists who pitched on stage in Singapore last week. This comes off the back of our wins at Paris Blockchain Week and Arbitrum Open House earlier this year. Thank you to TOKEN2049 for the opportunity, and to the judges from @Dragonfly, @multicoin, and @MaelstromFund for their sharp questions. Between the pitch and our booth, the message resonated, and it was great to meet partners we will work with long-term. Tokenization is well beyond a buzzword now. In Singapore, it was what everyone was actually working on rather than just talking about, and most of that work is about bringing assets on-chain. Every one of those assets carries risk, and that risk is what we tokenize and make tradable. That is the Risk Layer of crypto we are building. The other thing we took away from the week is that crypto has moved from promises to proof: what matters now is real utility and real users. That is the bar we hold ourselves to as we build on @arbitrum, and more than 17,000 wallets already use our testnet every month, with over 4,000 active daily. Try it yourself at app.riskprotocol.io

Thank you @ArbitrumDevs. At Founder House London, the @Arbitrum team and mentors gave us valuable feedback; a few founder-level conversations turned into integration talks; and we took home the 2nd Prize. We are building the Risk Layer of crypto on Arbitrum, and next week we pitch it on the @token2049 NEXUS stage in Singapore. Good luck to @xLiquida and @bermudabayzk; see you there. If you are an early-stage team, Founder House Singapore will be worth it.

Earlier today, more than $15 billion of BTC options expired on Deribit, one of the biggest expiries of the year. They settled at $83,931, just $28 above the cap of our current RiskON/RiskOFF epoch, which settles at midnight UTC. With BTC sitting right on that line, this epoch is almost decided: RiskOFF is up about 6%, near its maximum, and RiskON is slightly ahead. The bigger question is the next epoch. At midnight, a new one opens with a fresh band: a floor 5% below the opening price and a cap of about 6% above it, roughly $80k and $90k if BTC holds near the current level. So we asked the options market how that band is likely to end. Deribit's October options are pricing a 26% chance that BTC finishes the next epoch above the new cap, a 28% chance that it finishes below the new floor, and a 46% chance that it stays inside. In other words, options traders see BTC as slightly more likely to leave the band than to stay in it, and history agrees: about seven in ten 30-day stretches since 2019 ended outside a band like this one. That matters because outside the band is where RiskON and RiskOFF part ways. Above the cap, RiskON moves 2x while RiskOFF stops at its cap. Below the floor, RiskOFF's floor stops the loss while RiskON takes the extra fall at 2x. Inside the band, both simply track BTC. The mood going into the reset is calmer than it was on Tuesday. BTC futures open interest is down about $3 billion, funding is close to zero, and the Crypto Fear & Greed Index has moved from Extreme Greed to Greed. Leverage is lower in the system, but the market hasn't picked a direction yet. So, which side do you want at midnight? If you expect October to break higher, RiskON gives you 2x beyond the new cap, with no liquidations, margin calls, or funding. If you are worried about a drop, or you simply have no strong view, hold RiskOFF. It moves with BTC inside the band, and if BTC falls through the floor, losses stop at about 5%. You could always swap from RiskOFF to RiskON anytime you want if the cap approaches. The new epoch opens at midnight UTC on our testnet, so picking a side costs nothing but a few clicks. Make your call at app.riskprotocol.io, and use the simulator to see what each token pays wherever BTC lands in October.

We are building the Risk Layer of crypto, and at its core is a Risk Engine that prices risk every second. An engine that fast is only as good as the nodes connecting it to the chain, and it leans on them hardest on the days the market moves fastest, and every network is at its busiest. That is why we are glad to have @SpectrumNodes running dedicated nodes for us, with failover across regions, so the protocol can keep pace when the market speeds up. Thank you to the Spectrum team for backing builders at @SignalWeek (Paris Blockchain Week).

In less than six days, more than $1B of leveraged bets were liquidated across crypto, first the longs and then the shorts. Our current RiskON/RiskOFF epoch shows how far BTC moved during that period. Its floor sits 5% below where the epoch opened, at about $75k, and its cap about 6% above, at about $83.9k. BTC fell to the floor the day before the Fed hiked, as more than $500M of longs were closed out; on Monday, it broke through the cap as about $650M of shorts went the same way. At around $86k now, BTC sits near its highest level since January, about 15% above last week's low. The longs liquidated before the Fed were right about where BTC was going, but they were not in the trade when it got there. That is the lesson: when BTC can whip across the whole RiskON/RiskOFF band, from −5% to +6%, in under six days, a view only pays if the position behind it survives the path. Our Risk Dashboards point to more of this, not less: the forecast volatility model sees the next month as about a third more volatile than the last. The Tail Risk dashboard shows how fast the turns already come, with BTC taking twelve days to fall almost 8% from its early-September high and only three days to win it all back. Leverage is building back up anyway, with BTC futures open interest at about $51B, up from $44B when BTC sat at the floor. RiskON and RiskOFF went through the same week without a single forced exit. RiskOFF is now up close to 6%, the most it can make. RiskON follows BTC between the strikes and moves 2x beyond them, with no liquidations, margin calls, or funding; over the same stretch, it went from about 6% down to about 12% up. A new epoch opens on Saturday with fresh strikes, so now is the time to decide how you want to hold BTC through the next swing. If you trade it with leverage, ask whether last week would have closed your position; if it would have, RiskON gives you 2x beyond the strikes without that risk. If you want to stay in BTC but soften the next sharp day, RiskOFF is built for that: it cannot lose more than about 5% in an epoch. If you cannot tell which way the next week goes, hold RiskOFF through the uncertain part and rotate into RiskON as BTC climbs toward the cap. Timing that rotation is hard, so try it on our testnet at app.riskprotocol.io before you trade with real money as we build toward our mainnet launch.

Yield tokenization gave DeFi a new market. Risk tokenization gives it the risk infrastructure layer it never built. RiskON and RiskOFF split the risk of the underlying itself. One BTC or ETH in, two fully collateralized tokens out: RiskOFF with a floor on losses and RiskON with ~2x leverage. The split runs on options, not debt, so there are no margin calls, liquidations, or funding rates. RiskON and RiskOFF is just the beginning: the same engine can split risk along other lines too, like volatility, yield, and more. app.riskprotocol.io