Dynamic Collateral Optimization¶

Continuously optimize your collateral mix based on market conditions for best risk/reward.

The Strategy¶

Actively manage collateral composition to:

Maximize borrowing capacity
Minimize liquidation risk
Optimize for fee generation
Adapt to market conditions

Key insight: Not all collateral is created equal - different LTVs, volatilities, and correlations.

Complete Example: Optimize 10 ETHST Position¶

Your starting position:

Collateral: 10 ETHST ($30,000)
Borrowed: 15,000 USDST
LTV: 50%
Health Factor: 1.6
Risk: High (single asset)

After optimization:

Collateral: 3 ETHST + 0.18 WBTCST + 12,000 USDST ($30,000)
Borrowed: 18,000 USDST
LTV: 60%
Health Factor: 1.37
Risk: Medium (diversified)

Improvement:

✅ Borrow $3k more (trade-off: slightly lower HF)
✅ Lower volatility portfolio (70% → 45%)
✅ Better risk-adjusted returns

Understanding Collateral Types¶

Collateral Parameters on STRATO¶

Asset	LTV	Liq. Threshold	Volatility	Correlation to ETHST
ETHST	75%	80%	High (70%)	1.0 (perfect)
WBTCST	75%	80%	High (65%)	0.85 (high)
USDST	80%	85%	None (0%)	0.0 (none)
USDST	80%	85%	None (0%)	0.0 (none)
GOLDST	70%	75%	Moderate (40%)	0.3 (low)

Key insights:

Stablecoins have higher LTV (can borrow more)
But provide no price appreciation
Volatile assets have upside but more risk
Correlation matters for diversification

Optimization Framework¶

Step 1: Calculate Current Efficiency¶

Metric: Risk-Adjusted Borrowing Capacity

Current position:

- Collateral: 10 ETHST ($30k)
- Max borrow: $22,500 (75% LTV)
- Volatility: 70% (high)
- Sharpe-like ratio: $22,500 / 70% = 321

Target: Increase this ratio

Step 2: Identify Optimal Mix¶

Goal: Maximize borrowing capacity per unit of risk

Theory:

More stables = higher LTV, lower vol
Some volatile assets = upside exposure
Uncorrelated assets = better diversification

Optimal mix (depends on goals):

Conservative:

40% volatile (ETHST+WBTCST)
60% stables
Lower risk, less upside

Moderate (recommended):

60% volatile
40% stables
Balanced risk/reward

Aggressive:

80% volatile
20% stables
Higher upside, more risk

Step 3: Execute Rebalancing¶

For moderate allocation on $30k portfolio:

Target:

$18k volatile (60%)
$9k ETHST (3 ETHST)
$9k WBTCST (0.18 BTC)
$12k stables (40%)
$12k USDST

From current (10 ETHST):

Remove 7 ETHST from collateral
Temporarily reduces HF
Will fix by adding others
Swap 4 ETHST → $12k USDST
Keep as stables
Swap 3 ETHST → 0.18 WBTCST
Diversify volatile holdings
Supply new collateral:
3 ETHST
0.18 WBTCST
12,000 USDST

Result:

New collateral: 3 ETHST + 0.18 WBTCST + 12k USDST
Value: $30,000 (unchanged)
Max borrow: $23,100 (vs $22,500)
Volatility: ~45% (vs 70%)
Sharpe ratio: 513 (vs 321) ✅

Can now borrow $600 more with lower risk!

Dynamic Optimization Rules¶

Rule 1: Volatility Targeting¶

Set target portfolio volatility (e.g., 50%):

If volatility exceeds target:

Measure current vol (use price history)
Calculate over-exposure to volatile assets
Swap excess to stablecoins
Rebalance to hit target

When to use:

During high market volatility
When nervous about positions
Before major events (Fed meetings, etc.)

Rule 2: LTV Maximization¶

Goal: Borrow maximum while staying safe

Calculate weighted LTV:

Weighted LTV = Σ(Asset_Value × Asset_LTV) / Total_Value

Example:

- 3 ETHST ($9k) × 75% = $6,750
- 0.18 WBTCST ($9k) × 75% = $6,750
- 12k USDST × 80% = $9,600
Total: $23,100 / $30k = 77% effective LTV

vs pure ETHST: 75% LTV

Improvement: +2% borrowing capacity

Rule 3: Correlation Reduction¶

Minimize correlated assets:

Bad diversification:

50% ETHST
50% WBTCST
Correlation: 0.85 (move together)
Crash together in bear market

Good diversification:

30% ETHST
30% GOLDST
40% USDST
Correlations: 0.85, 0.0
Better protected in crashes

Formula:

Portfolio_Variance = Σ(w_i² × σ_i²) + Σ(w_i × w_j × ρ_ij × σ_i × σ_j)

Minimize this by choosing low-correlation assets

Market Condition Strategies¶

Bull Market (Prices Rising)¶

Optimize for:

Maximum upside exposure
Higher volatile allocation
Leverage if confident

Target mix:

80% ETHST + WBTCST - 20% stables (for stability)

Why:

Capitalize on appreciation
Stables provide safety net
Can borrow more as collateral grows

Bear Market (Prices Falling)¶

Optimize for:

Capital preservation
Reduce liquidation risk
Increase stable allocation

Target mix:

40% ETHST + WBTCST (minimum exposure)
60% stables (protection)

Why:

Reduce downside
Higher LTV on stables lets you maintain debt
Less chance of liquidation

Sideways Market (Ranging)¶

Optimize for:

Yield generation
Balanced risk
Fee optimization

Target mix:

60% volatile (some upside exposure)
40% stables (stability + higher LTV)

Why:

Balanced position
Can add leverage safely
Focus on yield vs price action

Advanced: Automated Rebalancing¶

Set Rebalancing Triggers¶

Volatility trigger:

If portfolio_volatility > 60%:
    Sell 10% of volatile assets
    Buy stablecoins
    Rebalance monthly

Drift trigger:

If any asset > 50% of portfolio:
    Rebalance to target
    Max 5% drift tolerance

Price trigger:

If ETHST drops > 15%:
    Sell some ETHST
    Add stablecoins
    Protect from further drops

Implementation:

Manual: Check weekly, rebalance monthly
Semi-auto: Price alerts + manual action
Fully auto: Smart contract + keeper bot (advanced)

Cost-Benefit Analysis¶

Rebalancing Costs¶

Per rebalancing event:

Action	Cost
Withdraw collateral	$0.10
Swap fees (0.3% × amount)	$30-90
Re-supply collateral	$0.30
Total	$30-100

Frequency recommendations:

Portfolio Size	Rebalance Frequency	Annual Cost
< $20k	Quarterly	$120-400
$20k-$100k	Monthly	$360-1,200
> $100k	Bi-weekly	$780-2,600

Benefits must exceed costs!

When Rebalancing Pays Off¶

Example:

Without rebalancing:

10 ETHST position
ETHST drops 30%
Liquidated, lose 10% = $900

With rebalancing (added stables):

Mixed collateral
ETHST drops 30%
Not liquidated
Cost to rebalance: $50

Net benefit: $850 ✅

Rebalancing is insurance

Real Example: Portfolio Over 1 Year¶

Starting (January):

10 ETHST ($30k)
50% LTV
Volatility: 70%

Q1 (Bull market):

Optimized to 80% volatile, 20% stable
Captured upside
Grew to $38k

Q2 (Volatility spike):

Rebalanced to 50% volatile, 50% stable
Reduced risk
Avoided liquidation in June crash

Q3 (Bear market):

Further reduced to 30% volatile, 70% stable
Preserved capital
Value: $30k (vs $20k if stayed 100% ETHST)

Q4 (Recovery):

Increased back to 60% volatile, 40% stable
Positioned for recovery
End value: $36k

Result:

Started: $30k
Ended: $36k (+20%)
Without optimization: $25k (-17%)
Optimization added 37% relative gain

Optimization Checklist¶

Monthly Review¶

[ ] Calculate current allocation percentages
[ ] Measure portfolio volatility
[ ] Check asset correlations
[ ] Compare to target allocation
[ ] If drift > 10%, plan rebalance
[ ] Check market conditions
[ ] Adjust target if needed
[ ] Execute rebalancing if warranted

Quarterly Deep Dive¶

[ ] Review all asset parameters (LTVs, etc.)
[ ] Analyze 3-month performance
[ ] Update target allocation
[ ] Consider new assets
[ ] Optimize debt structure
[ ] Calculate rebalancing ROI
[ ] Update strategy for next quarter

Tools & Resources¶

Portfolio Tracking¶

Spreadsheet template:

Columns:

- Asset
- Amount
- Price
- Value
- % of Portfolio
- Target %
- Drift
- Action Needed

DeFi dashboards:

Zapper.fi
DeBank
Zerion
Custom scripts

Volatility Calculation¶

Simple method:

Download 30-day price history
Calculate daily returns
Standard deviation × √365
= Annual volatility

Or use:

TradingView indicators
Crypto volatility indexes
Risk management tools

When NOT to Optimize¶

Skip Rebalancing If:¶

[ ] Drift < 5% from target
[ ] Rebalancing cost > expected benefit
[ ] Major market event imminent (wait)
[ ] Portfolio < $10k (not worth complexity)
[ ] Already rebalanced this month
[ ] Gas fees unusually high

Don't over-optimize

Common Mistakes¶

❌ Rebalancing Too Often¶

Problem: Death by a thousand fees

Fix:

Set minimum drift threshold (10%)
Maximum frequency (monthly)
Calculate if cost < benefit

❌ Chasing Past Performance¶

Problem: "BTC just pumped, let me add more"

Fix:

Stick to target allocation
Rebalance means selling winners
Buy low, sell high

❌ Ignoring Correlations¶

Problem: "Diversified" into 5 correlated assets

Fix:

Check correlation matrix
True diversification = low correlation
Include stables or negative correlation

Summary¶

Collateral optimization offers:

✅ Higher borrowing capacity
✅ Lower portfolio volatility
✅ Better risk-adjusted returns
✅ Adaptive to market conditions
❌ Requires active management
❌ Ongoing rebalancing costs

Best for: Users with $20k+ portfolios willing to actively manage

Key metric: Risk-adjusted borrowing capacity

Golden rule: Rebalance when benefit > cost

Next Steps¶

Portfolio Rebalancing - Execution guide
Multi-Asset Strategy - Use multiple assets
Risk Management - Hedge your portfolio

Learn More¶

Safety Guide - Risk management
Lending Guide - Collateral basics

Need Help?¶

Support: support.blockapps.net
Telegram: t.me/strato_net
Docs: docs.strato.nexus

Dynamic Collateral Optimization¶

The Strategy¶

Complete Example: Optimize 10 ETHST Position¶

Understanding Collateral Types¶

Collateral Parameters on STRATO¶

Optimization Framework¶

Step 1: Calculate Current Efficiency¶

Step 2: Identify Optimal Mix¶

Step 3: Execute Rebalancing¶

Dynamic Optimization Rules¶

Rule 1: Volatility Targeting¶

Rule 2: LTV Maximization¶

Rule 3: Correlation Reduction¶

Market Condition Strategies¶

Bull Market (Prices Rising)¶

Bear Market (Prices Falling)¶

Sideways Market (Ranging)¶

Advanced: Automated Rebalancing¶

Set Rebalancing Triggers¶

Cost-Benefit Analysis¶

Rebalancing Costs¶

When Rebalancing Pays Off¶

Real Example: Portfolio Over 1 Year¶

Optimization Checklist¶

Monthly Review¶

Quarterly Deep Dive¶

Tools & Resources¶

Portfolio Tracking¶

Volatility Calculation¶

When NOT to Optimize¶

Skip Rebalancing If:¶

Common Mistakes¶

❌ Rebalancing Too Often¶

❌ Chasing Past Performance¶

❌ Ignoring Correlations¶

Summary¶

Next Steps¶

Related Strategies¶

Learn More¶

Need Help?¶