Sensei_strategies_optim.ipynb

{
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   "source": [
    "\n",
    "Observation/Conclusion:\n",
    "\n",
    "When testing strategies to maximize yield by investing in liquidity pools, we observe the following:\n",
    "\n",
    "1. For Strategy 2, a health factor (HF) of 1.2 results in a yield of 44.9%, which is slightly higher than the yield of 40.5% with an HF of 1.3. However, this comes with a greater risk, as it requires the ETH price movement to be within ±270 (from an initial price of 3000), equating to approximately 9%. \n",
    "\n",
    "2. In comparison, an HF of 1.3 allows for a price variability of up to 16%, offering a balance between risk and yield.\n",
    "\n",
    "3. Increasing the HF to 1.4 lowers the yield to 37.4%, but it provides an extra margin of safety, permitting up to a 26% variation in token price.\n",
    "\n",
    "Given that the historical Value at Risk (VAR) for ETH is less than 15%, setting the HF at 1.3 appears to be the optimal solution, balancing yield and risk effectively."
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 1,
   "id": "d8e108a0",
   "metadata": {},
   "outputs": [],
   "source": [
    "# Definitions for bank1\n",
    "bank1 = {\n",
    "    'token2_supply_int': 17.9 / 100,  # Interest rate for supplying token2 in bank1\n",
    "    'token1_supply_int': 20.25 / 100, # Interest rate for supplying token1 in bank1\n",
    "    'token2_borrow_int': 2.83 / 100,  # Interest rate for borrowing token2 from bank1\n",
    "    'token1_borrow_int': 5.89 / 100,  # Interest rate for borrowing token1 from bank1\n",
    "    'token2_bf': 1,                   # Borrow factor for token2 in bank1\n",
    "    'token2_cf': 0.8,                 # Collateral factor for token2 in bank1\n",
    "    'token1_bf': 1,                   # Borrow factor for token1 in bank1\n",
    "    'token1_cf': 0.8                  # Collateral factor for token1 in bank1\n",
    "}\n",
    "\n",
    "# Definitions for bank2\n",
    "bank2 = {\n",
    "    'token2_supply_int': 17.27 / 100, # Interest rate for supplying token2 in bank2\n",
    "    'token1_supply_int': 20.98 / 100, # Interest rate for supplying token1 in bank2\n",
    "    'token2_borrow_int': 3.21 / 100,  # Interest rate for borrowing token2 from bank2\n",
    "    'token1_borrow_int': 8.15 / 100,  # Interest rate for borrowing token1 from bank2\n",
    "    'token2_bf': 0.9,                 # Borrow factor for token2 in bank2\n",
    "    'token2_cf': 0.8,                 # Collateral factor for token2 in bank2\n",
    "    'token1_bf': 0.95,                # Borrow factor for token1 in bank2\n",
    "    'token1_cf': 0.8                  # Collateral factor for token1 in bank2\n",
    "}\n",
    "\n",
    "health_factor = 1.4         # Health factor used in calculations\n",
    "init_tokens = 20000         # Initial amount of token1\n",
    "price2 = 3000               # Price of token2 (ETH)\n",
    "price1 = 1                  # Price of token1 (USDC)\n",
    "\n"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 2,
   "id": "529b6856",
   "metadata": {},
   "outputs": [],
   "source": [
    "def Max_borrow_token_limit(Collateral_USD_value, supply_collateral_factor, borrowtoken_BF, borrow_price):\n",
    "    \"\"\"\n",
    "    Calculate the maximum borrowing limit for a token based on the provided parameters.\n",
    "    \n",
    "    Collateral_USD_value: USD value of the collateral.\n",
    "    supply_collateral_factor: Collateral factor for the supplied token.\n",
    "    borrowtoken_BF: Borrow factor for the borrowed token.\n",
    "    borrow_price: Price of the borrowed token.\n",
    "    \n",
    "    Returns the maximum borrowing limit in terms of the borrowed token.\n",
    "    \"\"\"\n",
    "    return (Collateral_USD_value * supply_collateral_factor * borrowtoken_BF) / health_factor / borrow_price\n",
    "\n"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 3,
   "id": "b8444a50",
   "metadata": {},
   "outputs": [
    {
     "name": "stdout",
     "output_type": "stream",
     "text": [
      "bank_1_token1_supply_Interest 4050.0000000000005\n",
      "bank_1_token2_borrow_Interest -323.4285714285715\n",
      "token1_to_supply_bank1 11428.57142857143\n",
      "GI 3726.571428571429\n",
      "Strategy 1 Interest rate: 18.632857142857144 Initial tokens 20000\n",
      "bank_1_token1_supply_Interest 2314.2857142857147\n",
      "bank_1_token2_borrow_Interest -184.81632653061226\n",
      "token1_to_supply_bank1 6530.6122448979595\n",
      "GI 5856.040816326531\n",
      "Strategy 1 Interest rate: 29.280204081632654 Initial tokens 20000\n",
      "bank_1_token1_supply_Interest 1322.4489795918369\n",
      "bank_1_token2_borrow_Interest -105.60932944606418\n",
      "token1_to_supply_bank1 3731.7784256559776\n",
      "GI 7072.880466472304\n",
      "Strategy 1 Interest rate: 35.36440233236152 Initial tokens 20000\n",
      "bank_1_token1_supply_Interest 755.6851311953355\n",
      "bank_1_token2_borrow_Interest -60.34818825489381\n",
      "token1_to_supply_bank1 2132.4448146605587\n",
      "GI 7768.217409412746\n",
      "Strategy 1 Interest rate: 38.84108704706372 Initial tokens 20000\n",
      "Strategy 1 Interest rate: 41.00018742190755 Initial tokens 20000\n"
     ]
    }
   ],
   "source": [
    "def strategy1(health_factor, init_tokens, price1, price2, bank1, bank2):\n",
    "    \"\"\"\n",
    "    Implement the strategy to calculate gross interest based on the initial tokens supplied to the bank.\n",
    "    \n",
    "    health_factor: Health factor used in calculations.\n",
    "    init_tokens: Initial amount of token1 to be supplied.\n",
    "    price1: Price of token1 (USDC).\n",
    "    price2: Price of token2 (ETH).\n",
    "    bank1: Dictionary containing bank1 parameters.\n",
    "    bank2: Dictionary containing bank2 parameters.\n",
    "    \n",
    "    Returns the gross interest earned.\n",
    "    \"\"\"\n",
    "    token1_to_supply_bank1 = init_tokens  # Initial amount of token1 to be supplied to bank1\n",
    "    iterations = 0\n",
    "    gross_interest = 0\n",
    "    \n",
    "    while iterations < 4:\n",
    "        # Supply token1 to bank1 and calculate the supply interest\n",
    "        bank_1_token1_supply_Interest = token1_to_supply_bank1 * price1 * bank1['token1_supply_int']\n",
    "        print('bank_1_token1_supply_Interest', bank_1_token1_supply_Interest)\n",
    "        \n",
    "        # Calculate the borrow limit for token2 in bank1\n",
    "        bank_1_token2_borrow = Max_borrow_token_limit(\n",
    "            token1_to_supply_bank1 * price1, \n",
    "            bank1['token1_cf'], \n",
    "            bank1['token2_bf'], \n",
    "            price2\n",
    "        )\n",
    "        \n",
    "        # Calculate the interest for borrowing token2 from bank1\n",
    "        bank_1_token2_borrow_Interest = -bank_1_token2_borrow * price2 * bank1['token2_borrow_int']\n",
    "        \n",
    "        # Calculate the amount of token1 equivalent to the borrowed token2\n",
    "        token1_to_supply_bank1 = (bank_1_token2_borrow * price2) / price1\n",
    "        print('bank_1_token2_borrow_Interest', bank_1_token2_borrow_Interest)\n",
    "        print('token1_to_supply_bank1', token1_to_supply_bank1)\n",
    "        \n",
    "        # Update the gross interest\n",
    "        gross_interest += bank_1_token1_supply_Interest + bank_1_token2_borrow_Interest\n",
    "        print('GI', gross_interest)\n",
    "        print('Strategy 1 Interest rate:', gross_interest / init_tokens / price1 * 100, 'Initial tokens', init_tokens)\n",
    "        \n",
    "        iterations += 1\n",
    "    \n",
    "    # Add the final supply interest after all iterations\n",
    "    gross_interest += token1_to_supply_bank1 * price1 * bank1['token1_supply_int']\n",
    "    \n",
    "    return gross_interest\n",
    "\n",
    "# Calculate gross interest using strategy1\n",
    "GI = strategy1(health_factor, init_tokens, price1, price2, bank1, bank2)\n",
    "\n",
    "# Print the final interest rate achieved\n",
    "print('Strategy 1 Interest rate:', GI / init_tokens / price1 * 100, 'Initial tokens', init_tokens)\n"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 4,
   "id": "3196511f",
   "metadata": {},
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    {
     "name": "stdout",
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     "text": [
      "Bank_1_STRK_supply_Interest 4050.0000000000005 tokens 20000\n",
      "Bank_1_USDC_borrow_Interest -323.4285714285715 tokens 3.8095238095238098\n",
      "Bank_2_USDC_supply_Interest 1973.7142857142858 tokens 3.8095238095238098\n",
      "Bank_2_STRK_borrow_Interest -505.6326530612246 tokens 6204.081632653062\n",
      "GI 5194.65306122449\n",
      "Strategy 2 Interest rate: 25.97326530612245 Initial tokens 20000\n",
      "Bank_1_STRK_supply_Interest 1256.326530612245 tokens 6204.081632653062\n",
      "Bank_1_USDC_borrow_Interest -100.32886297376096 tokens 1.1817298347910596\n",
      "Bank_2_USDC_supply_Interest 612.254227405248 tokens 1.1817298347910596\n",
      "Bank_2_STRK_borrow_Interest -156.8493127863391 tokens 1924.5314452311545\n",
      "GI 6806.055643481883\n",
      "Strategy 2 Interest rate: 34.03027821740942 Initial tokens 20000\n",
      "Bank_1_STRK_supply_Interest 389.7176176593088 tokens 1924.5314452311545\n",
      "Bank_1_USDC_borrow_Interest -31.12242280002382 tokens 0.3665774181392676\n",
      "Bank_2_USDC_supply_Interest 189.92376033795452 tokens 0.3665774181392676\n",
      "Bank_2_STRK_borrow_Interest -48.65529702759908 tokens 596.997509541093\n",
      "GI 7305.919301651523\n",
      "Strategy 2 Interest rate: 36.52959650825761 Initial tokens 20000\n",
      "Bank_1_STRK_supply_Interest 120.89199568207134 tokens 596.997509541093\n",
      "Bank_1_USDC_borrow_Interest -9.654302582864535 tokens 0.1137138113411606\n",
      "Bank_2_USDC_supply_Interest 58.915125655855306 tokens 0.1137138113411606\n",
      "Bank_2_STRK_borrow_Interest -15.093071731010332 tokens 185.19106418417584\n",
      "GI 7460.979048675575\n",
      "Strategy 2 Interest rate: 37.30489524337787 Initial tokens 20000\n",
      "Strategy 2 Interest rate: 37.49240119586435 Initial tokens 20000\n"
     ]
    }
   ],
   "source": [
    "def strategy2(health_factor, init_tokens, price1, price2, bank1, bank2):\n",
    "    \"\"\"\n",
    "    Implement the strategy to calculate gross interest based on the initial tokens supplied to the banks.\n",
    "\n",
    "    health_factor: Health factor used in calculations.\n",
    "    init_tokens: Initial amount of token1 to be supplied.\n",
    "    price1: Price of token1 (USDC).\n",
    "    price2: Price of token2 (ETH).\n",
    "    bank1: Dictionary containing bank1 parameters.\n",
    "    bank2: Dictionary containing bank2 parameters.\n",
    "\n",
    "    Returns the gross interest earned.\n",
    "    \"\"\"\n",
    "    gross_interest = 0  # Initialize gross interest\n",
    "    iterations = 0  # Initialize iteration count\n",
    "    token1_to_supply_bank1 = init_tokens  # Initial amount of token1 to be supplied to bank1\n",
    "\n",
    "    while iterations < 4:\n",
    "        # Supply token1 (USDC) to bank1 and calculate the supply interest\n",
    "        bank_1_token1_supply_Interest = token1_to_supply_bank1 * price1 * bank1['token1_supply_int']\n",
    "        print('Bank_1_STRK_supply_Interest', bank_1_token1_supply_Interest, 'tokens', token1_to_supply_bank1)\n",
    "\n",
    "        # Borrow token2 (ETH) from bank1 and calculate the borrow interest\n",
    "        bank_1_token2_borrow = Max_borrow_token_limit(\n",
    "            token1_to_supply_bank1 * price1, \n",
    "            bank1['token1_cf'], \n",
    "            bank1['token2_bf'], \n",
    "            price2\n",
    "        )\n",
    "        bank_1_token2_borrow_Interest = -1 * bank_1_token2_borrow * price2 * bank1['token2_borrow_int']\n",
    "        token2_to_supply_bank2 = bank_1_token2_borrow  # Amount of token2 to supply in bank2\n",
    "        print('Bank_1_USDC_borrow_Interest', bank_1_token2_borrow_Interest, 'tokens', bank_1_token2_borrow)\n",
    "\n",
    "        # Supply token2 (ETH) in bank2 and calculate the supply interest\n",
    "        bank_2_token2_supply_Interest = token2_to_supply_bank2 * price2 * bank2['token2_supply_int']\n",
    "        print('Bank_2_USDC_supply_Interest', bank_2_token2_supply_Interest, 'tokens', token2_to_supply_bank2)\n",
    "\n",
    "        # Borrow token1 (USDC) from bank2 and calculate the borrow interest\n",
    "        bank_2_token1_borrow = Max_borrow_token_limit(\n",
    "            token2_to_supply_bank2 * price2, \n",
    "            bank2['token2_cf'], \n",
    "            bank2['token1_bf'], \n",
    "            price1\n",
    "        )\n",
    "        bank_2_token1_borrow_Interest = -1 * bank_2_token1_borrow * price1 * bank2['token1_borrow_int']\n",
    "        token1_to_supply_bank1 = bank_2_token1_borrow  # Amount of token1 to supply in the next iteration\n",
    "        print('Bank_2_STRK_borrow_Interest', bank_2_token1_borrow_Interest, 'tokens', bank_2_token1_borrow)\n",
    "\n",
    "        # Update the gross interest\n",
    "        gross_interest += (bank_1_token1_supply_Interest + \n",
    "                           bank_1_token2_borrow_Interest + \n",
    "                           bank_2_token2_supply_Interest + \n",
    "                           bank_2_token1_borrow_Interest)\n",
    "        print('GI', gross_interest)\n",
    "        print('Strategy 2 Interest rate:', gross_interest / init_tokens / price1 * 100, 'Initial tokens', init_tokens)\n",
    "        \n",
    "        iterations += 1  # Increment the iteration count\n",
    "\n",
    "    # Add the final supply interest after all iterations\n",
    "    gross_interest += token1_to_supply_bank1 * price1 * bank1['token1_supply_int']\n",
    "    \n",
    "    return gross_interest\n",
    "\n",
    "# Calculate gross interest using strategy2\n",
    "GI = strategy2(health_factor, init_tokens, price1, price2, bank1, bank2)\n",
    "\n",
    "# Print the final interest rate achieved\n",
    "print('Strategy 2 Interest rate:', GI / init_tokens / price1 * 100, 'Initial tokens', init_tokens)\n"
   ]
  },
  {
   "cell_type": "code",
   "execution_count": 5,
   "id": "b28bb578",
   "metadata": {},
   "outputs": [
    {
     "name": "stdout",
     "output_type": "stream",
     "text": [
      "bank2_totalsupply 5.471544873795297\n",
      "bank2_totalborrow 8910.801651609485\n",
      "bank1_totalsupply 28725.610587425308\n",
      "bank1_totalborrow 5.471544873795297\n",
      "bank2 3818.1818181818176\n",
      "bank1 2357.142857142858\n",
      "Strategy 2 Interest rate: 37.49240119586435 Initial tokens 20000\n"
     ]
    }
   ],
   "source": [
    "def strategy2(health_factor, init_tokens, price1, price2, bank1, bank2):\n",
    "    \"\"\"\n",
    "    Implement the strategy to calculate gross interest based on the initial tokens supplied to the banks.\n",
    "\n",
    "    health_factor: Health factor used in calculations.\n",
    "    init_tokens: Initial amount of token1 to be supplied.\n",
    "    price1: Price of token1 (USDC).\n",
    "    price2: Price of token2 (ETH).\n",
    "    bank1: Dictionary containing bank1 parameters.\n",
    "    bank2: Dictionary containing bank2 parameters.\n",
    "\n",
    "    Returns the gross interest earned.\n",
    "    \"\"\"\n",
    "    gross_interest = 0  # Initialize gross interest\n",
    "    iterations = 0  # Initialize iteration count\n",
    "    token1_to_supply_bank1 = init_tokens  # Initial amount of token1 to be supplied to bank1\n",
    "    \n",
    "    # Initialize total supply and borrow amounts for calculations\n",
    "    total_token2_from_bank1 = 0  \n",
    "    total_token1_to_bank1 = 0 \n",
    "    total_token2_to_bank2 = 0\n",
    "    total_token1_from_bank2 = 0\n",
    "    \n",
    "    # Minimum health factors for banks\n",
    "    hf2_min = 1.1\n",
    "    hf1_min = 1.1\n",
    "    \n",
    "    while iterations < 4:\n",
    "        # Supply token1 (USDC) to bank1 and calculate the supply interest\n",
    "        bank_1_token1_supply_Interest = token1_to_supply_bank1 * price1 * bank1['token1_supply_int']\n",
    "        total_token1_to_bank1 += token1_to_supply_bank1\n",
    "        \n",
    "        # Borrow token2 (ETH) from bank1 and calculate the borrow interest\n",
    "        bank_1_token2_borrow = Max_borrow_token_limit(\n",
    "            token1_to_supply_bank1 * price1, \n",
    "            bank1['token1_cf'], \n",
    "            bank1['token2_bf'], \n",
    "            price2\n",
    "        )\n",
    "        bank_1_token2_borrow_Interest = -1 * bank_1_token2_borrow * price2 * bank1['token2_borrow_int']\n",
    "        token2_to_supply_bank2 = bank_1_token2_borrow  # Amount of token2 to supply in bank2\n",
    "        total_token2_from_bank1 += bank_1_token2_borrow\n",
    "        \n",
    "        # Supply token2 (ETH) in bank2 and calculate the supply interest\n",
    "        bank_2_token2_supply_Interest = token2_to_supply_bank2 * price2 * bank2['token2_supply_int']\n",
    "        total_token2_to_bank2 += token2_to_supply_bank2\n",
    "        \n",
    "        # Borrow token1 (USDC) from bank2 and calculate the borrow interest\n",
    "        bank_2_token1_borrow = Max_borrow_token_limit(\n",
    "            token2_to_supply_bank2 * price2, \n",
    "            bank2['token2_cf'], \n",
    "            bank2['token1_bf'], \n",
    "            price1\n",
    "        )\n",
    "        bank_2_token1_borrow_Interest = -1 * bank_2_token1_borrow * price1 * bank2['token1_borrow_int']\n",
    "        token1_to_supply_bank1 = bank_2_token1_borrow  # Amount of token1 to supply in the next iteration\n",
    "        total_token1_from_bank2 += bank_2_token1_borrow\n",
    "\n",
    "        # Update the gross interest\n",
    "        gross_interest += (\n",
    "            bank_1_token1_supply_Interest + \n",
    "            bank_1_token2_borrow_Interest + \n",
    "            bank_2_token2_supply_Interest + \n",
    "            bank_2_token1_borrow_Interest\n",
    "        )\n",
    "        iterations += 1  # Increment the iteration count\n",
    "    \n",
    "    # Add the final supply interest after all iterations\n",
    "    gross_interest += token1_to_supply_bank1 * price1 * bank1['token1_supply_int']\n",
    "    \n",
    "    # Calculate the price adjustments\n",
    "    price2_bank1 = (\n",
    "        price1 * total_token1_from_bank2 * hf2_min / \n",
    "        (total_token2_to_bank2 * bank2['token2_cf'] * bank2['token1_bf'])\n",
    "    )\n",
    "    print('bank2_totalsupply', total_token2_to_bank2)\n",
    "    print('bank2_totalborrow', total_token1_from_bank2)\n",
    "    \n",
    "    price2_bank2 = (\n",
    "        total_token1_to_bank1 * price1 * bank1['token1_cf'] * bank1['token2_bf'] / \n",
    "        (total_token2_from_bank1 * hf1_min)\n",
    "    )\n",
    "    print('bank1_totalsupply', total_token1_to_bank1)\n",
    "    print('bank1_totalborrow', total_token2_from_bank1)\n",
    "    \n",
    "    # Print the calculated prices\n",
    "    print('bank2', price2_bank2)\n",
    "    print('bank1', price2_bank1)\n",
    "\n",
    "    return gross_interest\n",
    "\n",
    "# Calculate gross interest using strategy2\n",
    "GI = strategy2(health_factor, init_tokens, price1, price2, bank1, bank2)\n",
    "\n",
    "# Print the final interest rate achieved\n",
    "print('Strategy 2 Interest rate:', GI / init_tokens / price1 * 100, 'Initial tokens', init_tokens)\n"
   ]
  },
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   "execution_count": null,
   "id": "ef40fdca",
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