What is Sector Finance (SECT)?
Sector Finance (SECT) is a dapp on Arbitrum that creates risk-adjusted financial products and informs users about their risk exposures in order to accelerate the adoption of digital assets.
We have three core products: 1. The risk engine, 2. Single-strategy investments vaults and 3. Aggregator vaults. The risk engine evaluates and organizes the crypto-risk of our single-strategy investment vaults. The platform then creates structured product vaults that aggregate investment strategies to match the exact risk profile of a user.
While risk is an inherent aspect of investing, it is important that both individual and institutional investors are not subjected to the risks associated with poorly constructed products and obscure risk assessment methods. Sector Finance aims to promote the widespread adoption of digital assets by developing innovative financial products and providing investors with information regarding their risk exposures.
What are structured products?
Structured products combine multiple investment vehicles into one instrument.
How are Sector's Risk-Tranched Vaults different from a TradFi CDO?
CDOs were popularized during the mortgage loan boom-and-bust cycle that ended with the Great Recession. The CDOs that were built during that period of time did not have a strong emphasis on risk management and were constructed in a careless manner. Further, these CDO types were mainly backed by a pool of loans.
Sector's CDOs are fully transparent and verifiable, meaning anyone can see how they are constructed and what they are backed by. In general, they are backed by a pool of yield-bearing digital assets.
What does it mean to be delta-neutral?
Delta refers to the change in an option's price with a $1 change in the underlying asset price. To be delta-neutral, multiple investment positions are undertaken simultaneously, so the overall delta of the strategy is zero.
What is Sector's risk management mechanism?
We estimate the value at risk over the course of the year for each strategy. We analyze a variety of risk factors, like hack risk, or liquidation risk and sum them to obtain a total VaR. VaR is then converted to a relative risk score between 0 and 10.