Risk Engine

4 Risk Engine: Components and Functionality

The risk engine is a crucial component of Rumi Protocol's risk management framework. It consists of multiple elements working together to monitor, assess, and manage risks at various levels. Here's a detailed breakdown of the risk engine and its components

4.1 Data Collection: ETL Pipelines

Rumi Finance's risk engine relies on accurate and timely data to assess and manage risks effectively. Rumi collects data from on-chain and off-chain sources, such as blockchain transactions, protocol events, and market data. The data is then cleaned, normalized, and aggregated using Extract, Transform, Load (ETL) pipelines before being stored in an ElasticSearch cluster.

4.2 Risk Metrics Calculation

Using the data stored in the ElasticSearch cluster, the risk engine calculates various risk metrics for each investment strategy, pool, and asset. These metrics include Value-at-Risk (VaR), Conditional Value-at-Risk (CVaR), Sharpe ratio, volatility, and maximum drawdowns. These metrics help Rumi assess the risk-adjusted performance of its strategies and make informed decisions on rebalancing, diversification, and risk management.

4.3 Alerting system

An essential component of Rumi Finance's risk engine is its alerting framework, which continuously monitors the data stored in the ElasticSearch cluster. When predefined risk levels are breached, the alerting system triggers notifications and actions to respond appropriately. The alerting framework integrates with platforms like PagerDuty, enabling the Rumi team to receive real-time alerts and take prompt action to address potential issues.

4.4 Real-Time Monitoring Dashboards

To facilitate effective risk management, Rumi Finance utilizes Kibana to create visualizations of its positions, strategies, and pools. These monitoring dashboards enable the team to track the platform's performance and risk exposure in real-time, empowering them to make informed decisions and respond rapidly to changing market conditions.

4.5 Ongoing Strategy Reviews and Adjustments

Rumi Finance's risk management framework includes regular reviews and adjustments of its investment strategies. Weekly strategy reviews evaluate each strategy's performance, risk exposure, and alignment with the platform's objectives. These reviews may result in adjustments to the strategy's parameters or the implementation of new risk mitigation measures.

Additionally, Rumi Finance's risk committee conducts monthly reviews to assess the platform's overall risk exposure and make recommendations for further improvements to its risk management practices.