Optimizing Your Portfolio
Learn strategies for optimizing your investment portfolio
When you put money into Axal, we do not drop it all into one place and hope for the best. We carefully choose where it goes and how it is spread out, with a clear goal of seeking strong returns while keeping risks in check.
Diversification by design
Section titled “Diversification by design”We do not put all your eggs in one basket. Funds are spread across a mix of protocols. There are 2 main reasons why we do this:
- This diversification helps reduce exposure to any single risk.
- Yields in protocols can fluctuate. If one protocol underperforms, others help balance it out.
Currently we manage this allocation manually. However, a rebalancer that continuously tunes these weights is in progress and coming soon.
Risk reduction
Section titled “Risk reduction”How does diversification reduce risk? Well, let’s take a look at 2 different users.
Users 1: We put all our money into the highest yield protocol.
Users 2: We split our money within a group of strategies.
After 1 year, User 1 has earned 10%, but User 2 has only earned 8.4%. That represents a difference of 1.6% and that means User 1 has earned 16% more than User 2.
However, if Protocol 1 gets hacked, User 1 loses 100% of their portfolio. User 2 just loses 20%.
That means User 2 risks 5x less money for just 16% less earning. That is why diversification can help reduce risk!
Yield stability
Section titled “Yield stability”How does diversification improve yield? Well, let’s take a look at 2 different users.
Users 1: We put all our money into the highest yield protocol.
Users 2: We split our money within a group of strategies.
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On Day 1, User 1 will earn 16% more than User 2. However, let’s look at Day 2 where the yield has fluctuated:
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On Day 2, User 1 only earns 8.5% but User 2 earns 9%. It seems User 2 has now earned more than User 1 on Day 2.
This shows how yield fluctuations can benefit a user who is more diversified versus a user who puts their eggs into one basket.
How it works day to day
Section titled “How it works day to day”Everyday, Axal checks the health of our pools to ensure that we are depositing in and we check to make sure they are healthy. We also look at what the best allocation is daily. In the future, we will automate this entirely with a smart rebalancer.
Well then, you must be wondering, what do I have to do as an Axal user? That’s the great part. Axal handles the tough stuff to make sure users are earning the most they can daily. Users can stay hands off completely and simply watch their money grow!