Protocol Risk Simulation Engine built by Xerberus

[GENERAL] Name and surname of main applicant

Simon Peters

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

Entity (Incorporated)

[GENERAL] Co-proposers and additional applicants

The Xerberus DAO LLC

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

12

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language

No

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

We propose to build an open-source Protocol Risk Simulation Engine to develop more secure and efficient DeFi protocols on Cardano, built on top of the Xerberus Partnerchain.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

Yes

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

The open-source engine will be built on top of the Xerberus Partnerchain.

[GENERAL] Will your project’s output/s be fully open source?

Yes

[GENERAL] Please provide here more information on the open source status of your project outputs

The open-source Protocol Risk Simulation Engine will be released under an MIT license. Everyone may build the simulation engine and run it for their protocol.

[METADATA] Horizons

DeFi

[SOLUTION] Please describe your proposed solution

Every DeFi application relies on a set of critical parameters that determine its efficiency and safety.

For example, lending protocols often use simple functions to calculate interest on borrowed assets. However, these simplistic approaches can lead to capital inefficiency or high-risk environments that endanger user funds. A common issue is the over-collateralization requirement, where borrowers must deposit 200% of the loan value. While this reduces risk, it is inefficient—some assets may only need 150% collateral, while others might need more, depending on market conditions.

Similarly, mispricing the cost of capital, such as setting interest rates too high or too low, can result in reduced revenues for the protocol.

Building accurate simulations to model these dynamics is complex, as it involves sophisticated market analysis. This is where Xerberus Risk Ratings come in—they provide a solid foundation for building precise simulations.

We propose an open-source software solution that enables developers to input their DeFi applications and simulate their protocols under various market scenarios. By doing so, they can determine the optimal parameters for their specific use case based on current market conditions.

This tool will enhance the development of DeFi protocols on Cardano, helping builders to optimize capital efficiency and security by leveraging Xerberus Risk Ratings. It will ultimately lead to more robust and reliable DeFi applications within the Cardano ecosystem.

[IMPACT] Please define the positive impact your project will have on the wider Cardano community

Cardano was built with the vision of becoming the global financial system, and we've made significant strides toward realizing that goal.  

Now, it's time to professionalize our ecosystem to the point where our applications surpass even the most advanced ones in the crypto space in terms of risk management and capital efficiency.  

By developing applications that are highly resilient to stress and optimized for revenue generation, we can create a more attractive environment for both investors and builders. This, in turn, will drive sustainable growth for the ecosystem.  

Our decision to open-source this simulation tool is central to this vision. By doing so, we lower the barrier for builders to create capital-efficient dApps, adding fertile ground for innovation across the ecosystem.  

Developers will be able to fork the project from our GitHub repository and utilize educational videos that guide them on how to use the application to simulate their own dApps effectively.  

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

Xerberus has developed a comprehensive risk model for Cardano tokens that is widely used across the Cardano ecosystem. Our model is integrated into various wallets and DeFi applications, helping to warn users about market stress and providing clear explanations of potential risks.  

We take pride in being one of the most advanced risk management solutions for crypto assets, not just within Cardano, but across the entire crypto industry.  

For more information about the Xerberus Risk Rating, please visit our website or access our WebApp: https://www.xerberus.io.  

Additionally, by the time of this proposal's review, Xerberus will have launched an early testnet for our partner chain. This demonstrates our capabilities beyond risk modeling—we also possess a deep understanding of protocol design.  

Xerberus is one of the few entities in the crypto space capable of producing such advanced simulations, and we are committed to using these tools to ensure Cardano’s success.

[PROJECT MILESTONES] What are the key milestones you need to achieve in order to complete your project successfully?

Milestone 1: Paper Outlining the Simulation

As a research-driven project, our first milestone will be the creation of an in-depth paper that outlines the challenges and potential solutions involved in developing a comprehensive simulation for DeFi protocols. This paper will serve as a foundational guide, exploring key issues such as risk management, capital efficiency, and market dynamics in the context of DeFi on Cardano.

Milestone 2: Developing the Product Software Architecture

For our second milestone, we will focus on designing the software architecture for the open-source simulation tool. The architecture will likely include a computation backend, a user-friendly frontend for input, and integrations with the Xerberus partner chain as well as other relevant APIs. To ensure a seamless user experience, this milestone will involve the creation of a detailed software architecture plan. This plan will consist of various diagrams and written documentation outlining the structure and components of the system.

Milestone 3: Wireframes

Our third milestone focuses on designing an accessible user interface. Creating a simulation tool can be complex, so an intuitive and user-friendly interface is crucial to make it easier for developers to navigate and use the simulation. As part of this milestone, we will design wireframes, which will be submitted as a Figma file, showcasing the fully designed simulation engine. These wireframes will allow Catalyst reviewers to understand how end users will interact with the simulation tool. Additionally, we will provide a video explanation of the engine to offer context and clarity, as some aspects of the simulation may be challenging to grasp without guidance.

Milestone 4: Prototype

In this milestone, we will integrate all components to deliver the first version of the simulation in a production environment. Reviewers will have access to the development environment and be able to run an initial simulation. While the prototype may have some limitations and bugs, these will be clearly identified when submitting the milestone. This early version will demonstrate the core functionality of the simulation, marking a significant step toward the final product.

Milestone 5: Production

In this final major milestone, we will deploy the simulation engine into a full production environment, accessible via a Xerberus URL. This will allow anyone to simulate a DeFi protocol without the need to fork the GitHub repository or access a development environment. The production environment will be a user-friendly platform, easily accessible without login requirements, ensuring open access to the simulation engine for the broader Cardano ecosystem.

As part of this final milestone, we will submit a comprehensive Catalyst Project Report. This will include a fully cleaned-up and organized GitHub repository, ready for developers to fork and use. Additionally, we will provide a link to a YouTube playlist with detailed tutorial videos explaining how to use the protocol risk simulation engine. These resources will ensure that developers have everything they need to effectively leverage the simulation tool.

[RESOURCES] Who is in the project team and what are their roles?

The Xerberus team has grown significantly. At its core are the three founders: Simon Peters, Noach Detwiler, and Matthias Guilbert. In addition, two quants, Dekel and Vadim, who are both led by Noach (also known as “Data Hippo”), are participating in this proposal. All three of them are trained physicists, bringing a wealth of expertise to the project, and they are eager to begin designing the simulation.

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources

1.Dev Hours  

Rate: $80/hour  

Quantity: 50 hours  

Total: $4,000 USD (8,000 ADA)

Justification:  

Development hours are necessary to build the core components of the simulation platform, including both backend (computation engine) and frontend (user interface). 50 hours is likely allocated for initial development tasks such as setting up the server infrastructure, building APIs, integrating with Xerberus, and ensuring a functional and responsive frontend. This also includes debugging and initial testing.

2.Quant Hours  

Rate: $80/hour  

Quantity: 3010 hours  

Total: $240,800 USD (481,600 ADA)

Justification:  

Given that this project relies heavily on simulations and advanced risk modeling, a significant number of hours (3010) is allocated to the quants. The quants are responsible for designing, building, and testing the complex mathematical models that will power the simulations. They will need to implement simulations for various DeFi protocols, test market scenarios, and optimize parameters to ensure the accuracy and efficiency of the risk engine. Given the depth and complexity of the simulations, the bulk of the budget goes toward this vital aspect of the project.

3.Designer Hours  

Rate: $50/hour  

Quantity: 20 hours  

Total: $1,000 USD (2,000 ADA)

Justification:  

The designer's work focuses on creating a user-friendly interface that simplifies the use of complex simulations. The 20 hours likely cover the design of wireframes, UX flow, and adjustments based on feedback. An accessible UI is crucial to ensure that developers, builders, and other stakeholders can easily interact with the platform without requiring deep technical knowledge.

4.Legal Hours  

Rate: $400/hour  

Quantity: 10 hours  

Total: $4,000 USD (8,000 ADA)

Justification:  

Legal services are required to ensure that the project operates under the appropriate open-source licensing framework. Specifically, we will work with legal professionals to draft and optimize the MIT License for the project. This will allow for open-source distribution while ensuring that the intellectual property rights are clearly defined and protected. The 10 hours allocated for legal consultation will cover the drafting of the license, as well as any associated legal requirements.

Summary  

• Total Cost in USD: $249,800  
• Total Cost in ADA (at $0.50/ADA): 499,600 ADA

This budget reflects the complexity and scale of the project. The majority of resources are allocated toward quantitative analysis and simulation development, which is the core of the platform. Supporting roles, such as development, design, and legal, ensure that the final product is robust, user-friendly, and compliant with regulatory standards.

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

Cardano is designed to be the future of global finance, and achieving widespread adoption requires enabling builders to create the most advanced protocols in the crypto industry. Xerberus has a proven track record of building for the community, and by developing an open-source model that enhances capital-efficient DeFi, we believe this project will have ripple effects throughout the entire Cardano ecosystem.

Regarding our costs, we pay standard wages that reflect the cost of living in cities like London, where our operation is based. The rates we have set are aligned with typical freelance and professional rates in our industry, ensuring that we provide the highest quality of quantitative expertise to the Cardano community while operating on a cost basis.

We have assumed ADA to be priced at $0.50, which is conservative compared to its current value at the time of writing. While ADA's price may rise during a bull run, we need to plan conservatively as we are hiring real people with families and ongoing commitments. Should ADA's value exceed our price assumption, we will reinvest any additional funds into improving the application by enhancing design quality and user experience through additional development hours.