AI Rebalancer

Amplified Vault’s AI-driven rebalancing and Automated Liquidity Management (ALM) system leverages advanced machine learning models like ARIMA, LSTM, and reinforcement learning to predict APYs and optimize asset allocation in real time. By aggregating and analyzing data from various DeFi protocols, the AI uses optimization techniques such as Markowitz’s Modern Portfolio Theory (MPT) and Mean-Variance Optimization (MVO) to maximize yields while managing risk through models like Value at Risk (VaR) and Conditional Value at Risk (CVaR).

How the AI Rebalancer and ALM System Work:

1. Data Inputs: Our AI system continuously aggregates real-time data from various DeFi protocols like Uniswap V3, Ether.fi, Aave, and Yearn.finance. This includes metrics such as APYs, liquidity levels, slippage, gas fees, and market volatility.

2. Feature Engineering: The AI processes this data to extract key features that indicate the current and predicted performance of each liquidity pool or staking position. These features include historical yield patterns, volatility measures, liquidity shifts, and correlation metrics between different assets.

3. Time Series Forecasting: To predict the future APYs of different pools, the AI employs time series forecasting models like ARIMA (AutoRegressive Integrated Moving Average) and LSTM (Long Short-Term Memory) networks. These models are particularly effective at capturing temporal dependencies and long-term trends in the APY data, enabling the protocol to anticipate shifts in yield opportunities.

4. Optimization Algorithms: The AI rebalance employs optimization algorithms such as Markowitz’s Modern Portfolio Theory (MPT) and more advanced techniques like Mean-Variance Optimization (MVO). These methods help determine the ideal asset allocation that maximizes returns while minimizing risk based on the predicted APYs and the correlation between different assets in the vault.

5. Smart Contracts: Once the AI rebalance determines the optimal asset allocation, the vault manager creates an on-chain proposal that should be signed by other signature delegates. The protocol’s smart contracts then execute these strategies automatically.