Securing DeFi: Our collaboration with Gearbox

The DeFi sector has been one of the most dynamic and rapidly evolving areas of the crypto space. As the sector matures, institutional investors are increasingly recognizing its potential, bringing with them not just capital, but also a demand for sophisticated risk management tools and strategies.

IntoTheBlock has positioned itself at the forefront of this movement, equipping institutions with the technology, strategies, and risk management solutions necessary to navigate the complexities of DeFi. Our partnership with Gearbox arose naturally from our mutual focus on robust risk management, deepening our collaboration as we work together to advance institutional DeFi.

About Gearbox Protocol

Gearbox Protocol uses Credit Account abstraction to combine lending and prime brokerage in the same protocol. Lenders deposit assets to earn passive yield, while leverage-side users borrow these assets to create spot leverage positions, which can be used across DeFi.

The Core of the Collaboration: Risk Management

Our collaboration with Gearbox spans several of our core activities, with risk mitigation and management being perhaps the most crucial. As DeFi continues to expand, the complexity of managing risks — both technical and economic — will only intensify.

Gearbox stands as a leader in DeFi for its rigorous approach to economic risk mitigation. At the protocol level, Gearbox treats economic risk assessment with the same importance as technical risk reviews. This is highlighted through their internal Risk Event Dashboard and their collaborations with several projects that help model their market’s economic risk parameters to help avoid economic losses.

In the coming weeks, we will launch a dedicated Risk Radar dashboard for managing economic risk on Gearbox, providing users with the tools they need to deploy capital securely in the protocol.

Understanding Complex DeFi Risks

To fully appreciate the significance of our collaboration, it’s essential to look closer at the nature of risk within DeFi. Contrary to popular belief, effective risk management in DeFi extends far beyond simply protecting against hacks.

Technical risks are often binary — either a smart contract functions as intended, or it doesn’t. In contrast, economic risks are far more nuanced, evolving continuously with market conditions. Managing these dynamic economic risks requires ongoing monitoring and adaptation — an area in which IntoTheBlock excels.

We leverage advanced models to monitor a wide range of economic risk signals, including asset liquidity, price volatility, and borrow rates. These signals are foundational in understanding and mitigating more complex risks such as slippage, exit fees, and potential liquidations. Within Gearbox, these models function seamlessly, ensuring that institutions can deploy capital with the confidence that emerging risks will be swiftly addressed.

Strategies in Action

Given Gearbox’s proactive approach to mitigating both technical and economic risks, it aligns well with our institutional DeFi strategies. One of the most successful strategies we’ve deployed in Gearbox is passive pool lending. In this strategy, we closely monitor collateral risks and the available capacity in Gearbox’s lending pools to ensure assets remain liquid and accessible, even during periods of high utilization. This vigilant oversight allows us to respond dynamically to market conditions, thereby protecting the liquidity and returns of institutional investors.

Beyond passive lending, IntoTheBlock has also developed strategies such as leverage farming and hybrid approaches that combine lending with leverage farming. These strategies are tailored to optimize returns while adhering to a robust risk management framework, making them well-suited for the complex DeFi landscape.

Looking Ahead

One of the most exciting developments on the horizon is the launch of IntoTheBlock’s economic risk dashboard for Gearbox, which will be integrated within our Risk Radar Platform. This tool will enable Gearbox users to monitor risk signals, empowering them to make informed decisions and manage their strategies proactively.

This collaboration underscores a broader trend in DeFi: the growing integration of sophisticated risk management tools as a prerequisite for institutional participation. As more institutions enter the space, partnerships like that between IntoTheBlock and Gearbox are likely to become the norm, setting a new standard for how capital is deployed and protected in DeFi.

Visit IntoTheBlock: https://www.intotheblock.com/

Securing DeFi: Our collaboration with Gearbox was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.