# DeFi Asset and Risk Management Principles This document outlines the principles that will guide the deployment of Treasury liquidity to support Decentralized Exchanges (DEXs). The strategy is designed to enhance market stability, user experience, and long-term ecosystem growth by contributing to liquidity in key trading pools. **I. Strategic Purpose** The liquidity deployment program aims to: * Improve the trading experience by reducing **slippage** and **impermanent loss**. * Support **market efficiency** and attract higher **trading volumes**. * Encourage a **market-driven growth** in liquidity that is sustainable and non-disruptive. * Ensure all actions are **measurable, transparent, and adaptive** to market conditions **II. General Principles** Liquidity deployment will follow these high-level principles: * **Target Pools**: Liquidity will be added to **ADA–stablecoin pairs** only. * **User Experience Focus**: Deployment is intended to reduce friction in trading by minimizing **price slippage** and **volatility-driven impermanent losses**. * **Volume Incentivization**: Increased liquidity is expected to improve price execution and attract greater trading activity. * **Gradual Rollout**: Deployment will be **incremental**, with amounts based on daily volumes consistent with recent market liquidity changes to prevent shocks. **III. Risk and Asset Management Principles** To minimize market disruption and ensure sustainable impact, the following operational guidelines will apply: **A. Market Eligibility and Conditions** * Only stablecoins with a **minimum liquidity threshold** (e.g., \>1M ADA and equivalent stablecoin) will be supported. **B. Deployment Mechanics** * **Phased Allocation**: Liquidity will be distributed **over multiple days or weeks** to avoid overwhelming any market. * **Volume Matching**: Daily allocation amounts will be informed by the **empirical distribution of historical daily liquidity variations**. * **OTC Conversion**: ADA will be converted to stablecoins via **over-the-counter (OTC)** channels, minimizing market impact. **C. Market Safeguards and Monitoring** * **Slippage–Fee Balance**: Deployment will be tuned to reduce slippage while avoiding excessive **arbitrage opportunities** that could distort price discovery. * **Volatility Awareness**: Market-specific liquidity volatility will guide deployment sizing to avoid adverse effects. * **Transparency**: * **Liquidity impact** and **slippage reduction** will be measured and reported **monthly**. * **Volumes, fees earned, and growth in independent liquidity** will be evaluated **monthly**. **IV. Case Study: USDA and USDM Markets** ![][image1] ![][image2] Charts above illustrate the liquidity structure of two example markets: USDA and USDM. ADA reserves are shown on the left axis, stablecoin reserves on the right. These markets exceed the 1M ADA liquidity threshold and have exhibited stability since May 2025, making them representative candidates. Below we analyze volumes and their relation with the size of the reserves. ![][image3] ![][image4] Analysis of recent market data shows a **positive correlation** between **daily trading volumes** and **liquidity levels**: * **USDA Market**: Correlation rose from **6%** during the initial high-volatility phase to **31%** since **May 12, 2025**. * **USDM Market**: Correlation has ranged from **25% to 43%** across various periods characterized by significantly different levels of liquidity: * 43% from May 12, 2025 * 25% from March 12 to May 12 * 31% from November 8, 2024, to May 12 2025 * 39% in the previous period. This supports the hypothesis that higher liquidity drives better execution and encourages volume — justifying our gradual, liquidity-aligned deployment. The increase of volumes can be put in relation with the reduced impact of trades on prices. To measure **slippage**, we assess the price movement resulting from a standardized trade of **1000 ADA**. ![][image5] ![][image6] The resulting price changes show a clearly **negative relationship with liquidity**, consistent with the constant product invariant model. This confirms that increased reserves reduce execution impact, improving price stability for traders. To avoid market shocks, we analyze the **empirical distribution of daily liquidity variations** in the USDA and USDM pools (from May 12, 2025 onward). * Deployment sizes will be constrained within **historical variation buckets**. * This ensures that added liquidity is within the range of normal market activity, helping maintain stability and avoid drawing excessive attention. ![][image7] ![][image8] This framework ensures that Treasury liquidity is deployed in a way that enhances market functioning while minimizing risk. Through data-driven thresholds, gradual rollout, and transparent reporting, the strategy balances impact with resilience — reinforcing the long-term growth of decentralized markets. [image1]: [image2]: [image3]: [image4]: [image5]: [image6]: [image7]: [image8]: