DeRisk on Cardano

[GENERAL] Name and surname of main applicant

Marek Hauzr

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

Entity (Incorporated)

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

6

[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)

DeRisk monitors that in realtime and thus provides an early warning system and time for stakeholders to take preemptive measures when such risks arise.

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

No

[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.”

No dependencies.

[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

MIT/Apache 2:0

[METADATA] Horizons

Risk Management

[SOLUTION] Please describe your proposed solution

Every year millions of dollars in value are lost due to bad debt acquisition on chains mostly because this risk is not monitored in a way it should be and the relevant stakeholders rely on security pools. DeRisk monitors that in realtime and thus provides an early warning system and time to take preemptive measures when such risks arise. 

The solution is unique as it offers chain-wide information that is freely available to everyone and thus significantly contributes to the strength of the Cardano DeFi ecosystem. The project was already successfully rolled out on Starknet and Solana and is scaling further to other chains. 

This project is aimed at both end users and protocols. End users receive notifications about their own loans and the risk of those being liquidated and the risk of any loan on the lending protocols going under the water. Protocols receive open sourced risk monitoring of under the water loans that they can use as is or can build on top.

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

DeFi is coming to a new age of more complex products. We had and have simple loans where biggest tokens were used as collateral, then loans with LP tokens as collateral came into place and now more complex products like yield stripping are moving in which in combination with the rest of DeFi will create a huge mess and massive structural issues and risks. Imagine the complexity of the repackaged mortgages in TradFi that caused the 2008 crisis. The complexities in DeFi will be even worse. DeRisk is here to save us!

With the DeFi activities growing on Cardano the risk of acquiring bad debt is rising. Overseeing the major 3 lending protocols (with more than 5 mil. USD in TVL) USD in TVL altogether is becoming a challenge. With DeRisk implemented, Cardano users (lending protocols, Cardano foundation, and major DeFi investors) will be able to monitor and assess the risk of bad debt accumulation across the chain. If an increasing risk is identified, there will be time put in place precautionary measures.

Cardano’s users and especially those involved in lending protocols will have a protocol wide monitoring that will allow them to monitor the risks that might reach them. They will have not only a dashboard, but an app that will notify them on telegram. We see our success indicator in the commitment of lending protocols to use DeRisk and use DeRisk’s output to influence their behavior. Our goal for DeRisk is for it to be self-sustainable. So within the 12 months we want to provide such value for the lending protocols that it will be hard to replace DeRisk. Meaning that after the 12 months the lending protocols will support DeRisk.

Now more on how DerRisk works. In essence, the tool monitors at which price levels of given underlying assets loans across lending protocols will be liquidated. It also oversees the available liquidity on the chain and warns about potential shortages.

Imagine a risk of potential lack of liquidity is identified. Lending protocols will be warned and will have time to react. They could stop issuing loans whose liquidations would increase the overall risk, or adjust collateral needed. They could also say ahead of time that "loans A to Z get additional incentive for liquidation" which would result in liquidators bringing more capital.

Aside from providing the monitoring and the possibility to dodge such risk, DeRisk would also enable a better allocation of a significant part of the capital that now has to be in security pools. Additionally, DeRisk would help Cardano in more ways:

• It standardises loan data so that it is easier for liquidators to be onboarded not only as liquidators for a single protocol but for multiple ones with low additional cost.
• It will also be possible to forecast probable arbitraging opportunities on a chain level, resulting in a higher market efficiency.
• DeRisk will also contain analytics and insights into the lending protocols and compare them between each other. Giving their users more confidence in not only lending protocols but also in Cardano.

[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?

Derisk has a successful implementational track record: it has already been implemented on Starknet (https://starknet.derisk.carmine.finance) and Solana (https://solana.derisk.carmine.finance). It also received funding from a 3rd chain. The success of the integration on Cardano will be ensured by our team of developers and subject matter experts (that have successfully developed on 2 chains already).

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

Environment setup and customisation of current infrastructure 

• Milestone outputs: Prepare the existing technology for the integration of Cardano
• Acceptance criteria: 
• DeRisk Cardano Github repo ready
• DeRisk infrastructure adjusted and ready for the integration of Cardano's AMMs and Lending Protocols

Evidence of milestone completion: Integration of first AMMs and lending protocols started (first commits on DeRisk Github)

Integration of AMMs

• Milestone outputs: Integrate Cardano’s major AMMs
• Acceptance criteria: 
• Liquidity on these AMMs will be standardized so that it could be easily used in DeRisk.
• Documentation detailing the implementation will be available.

Evidence of milestone completion: Github showing the integration of the AMMs (Minswap, Splash Protocol, and SundaeSwap)

Integration of Lending Protocols

• Milestone outputs: Integrate Cardano’s Lending Protocols
• Acceptance criteria: 
• Loans from these protocols will be standardized (standardized access to query debt, collateral, health).
• Standardized measure of health factor will be implemented. The standardized health factor is defined as the current price divided by the expected price of liquidation, where "expected" assumes no change to the loan.
• Price vector of expected liquidation per loan will be implemented.
• Documentation detailing the implementation will be available.

Evidence of milestone completion: Github showing the integration of the Lending Protocols (Liqwid, Lenfi, and Optim Finance)

Visualization (FrontEnd) & Finalisation

• Milestone outputs: Finalization of the tool, and adjusting the frontend to Cardano users
• Acceptance criteria: 
• Frontend fully implemented and optimized for Cardano users
• Tool finalized, tested, and operational
• DeRisk published under the MIT license
• Notification app on Telegram running

Evidence of milestone completion: DeRisk fully deployed and operational on the Cardano network. Public GitHub repository with source code and documentation available.

Running DeRisk 

• Milestone outputs: DeRisk running as a publicly accessible dashboard
• Acceptance criteria: 
• Solution continuously operational for 1 year

Evidence of milestone completion: DeRisk platform successfully running and accessible for a 12-month period.

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

• Marek Hauzr (CEO), LinkedIn https://www.linkedin.com/in/marek-hauzr-8016077b/: The founder of Carmine Finance (https://www.carmine.finance/) is an accomplished fintech expert with a multidisciplinary background in economics, finance, and computer science. He has served as the lead quant at an investment bank, developing high-frequency trading strategies in European markets, and later spent a few years building fintech startups at a leading European corporate venture builder, focusing on AI-driven applications for financial institutions. In 2021, he transitioned to the DeFi space, leading a blockchain arbitrage team. By 2022, he began developing an options AMM, which led to the establishment of Carmine Options, successfully securing funding from multiple Layer 1 chains to continue innovating within the DeFi ecosystem.
• Lukas Petrasek (Lead Developer), LinkedIn https://www.linkedin.com/in/lukas-petrasek/: Lukas is an experienced professional in software development and data science, with a specialization in algorithmic trading on stock exchanges. Over his career, he and his team have developed trading strategies, monitored hedge fund activities, and managed proprietary trading platforms, focusing on infrastructure and risk management frameworks. He has also designed and operated large-scale data infrastructures to support the created algorithms. Lukas took responsibility for analyzing strategies, designing and integrating trading algorithms, and overseeing operations. Currently, Lukas leads the development of the DeRisk platform.
• David Vodrazka (Senior Full-Stack Engineer), LinkedIn https://www.linkedin.com/in/davevodrazka: David has nearly five years of experience developing user interfaces at the large central European search engine, where he contributed to building a platform competitive with global leaders. He then transitioned into the DeFi space as a co-founder of Carmine Finance. While his early work focused on frontend development, he expanded his expertise to include infrastructure management and occasional smart contract development. David now leads the development of the user interface, ensuring it remains intuitive and efficient for users.
• Nikanor Goreglyad (Senior Software Engineer), Linkedin https://www.linkedin.com/in/goreglyadn/: Nick combines solid software engineering experience with a decent data-science background, making him an ideal colleague to build complex tools. He started as a data-science engineer in corporate venture building where he worked for several years. He developed AI tools focussing on image recognition, NLP and machine learning for global finance and insurance companies. He then joined Carmine Finance where he focuses on the development of DeRisk and a new feature of the AMM allowing to hedge impermanent loss.

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

We estimate the total costs to be at ₳326 000:

• Milestone 1: ₳28 000
• Milestone 2: ₳35 000
• Milestone 3: ₳170 000
• Milestone 4: ₳28 000
• Milestone 5: ₳65 000

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

The cost of the DeRisk project represents strong value for money for the Cardano ecosystem by providing a high-impact, cost-efficient solution to a critical issue—managing liquidity risks across multiple AMMs. DeRisk enhances the stability and security of DeFi on Cardano by offering real-time risk management tools that are both accessible and scalable.

Moreover, the costs are proportional to the value DeRisk will bring to Cardano by preventing systemic risks related to underwater loans and liquidity issues. Compared to similar solutions on the market, DeRisk is far more cost-effective, providing comparable services at a fraction of the price. While those solutions can cost between $0.5 - 1 million per year, we offer DeRisk for significantly less, making it accessible to a broader range of DeFi protocols.

In sum, the relatively low cost of development and deployment is justified by the significant benefits of enhanced risk mitigation, greater ecosystem resilience, and broad accessibility for DeFi protocols on Cardano.