Mid-Layer Risk Management Server for External Quant Strategies

The mid-layer server will be deployed on external trading strategies to protect our investors against malicious trading signals executed by external quant funds that could have an ill-intent.

The mid-layer is added as a risk parameter to protect the user's funds in omnichannel and single-chain environments.

Such as the dYdX perpetual futures from malicious or out-of-the-ordinary trade signals that might be sent by quant hedge funds, incorporating a "connector container" as a mid-layer offers additional risk management and control. This connector container is an intermediary between third-party trading strategies and the dYdX account where the user's assets are held. The primary purpose of this mid-layer is to introduce enhanced risk management parameters, allowing quantitative analysts Kvants to fine-tune trading strategies according to specific risk profiles.

Here is how this system operates in a technical context:

Integration with Third-Party Strategies

  • The trading server, already connected to the dYdX account via API keys, hosts the connector container.

  • This container interfaces with third-party trading algorithms or strategies. These strategies are developed externally but are intended to operate on the assets held in the dYdX account.

Risk Management Functionalities

  • Within the connector container, kvants can specify various risk management parameters. These include setting maximum drawdown limits, defining stop-loss thresholds, or adjusting leverage levels.

  • The container is programmed to continuously monitor and enforce these parameters, ensuring the trading activities align with the predefined risk tolerance.

Execution of Trades

  • When a third-party strategy generates a trade signal, this signal passes through the connector container.

  • The container validates the trade against the set risk parameters. If a trade violates these parameters, it can be automatically modified or rejected, thus adding a crucial layer of risk control.

Technical Implementation

  • The connector container might be implemented as a microservice or a set of smart contracts. It can be programmed in languages such as Python for algorithmic logic and Solidity for smart contract interaction.

  • The interface with third-party strategies and the dYdX account would likely involve API calls and smart contract functions. For instance, a Python script could analyze trade signals against risk parameters and call a smart contract to execute compliant trades.

Technical Implementation KvantsAI

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