Risk Management

Overview

The AI Vault implements multiple safeguards to protect user funds while optimizing returns. Our risk management focuses on practical measures to mitigate common DeFi risks.

Key Risk Mitigation Strategies

Health Factor Monitoring

The vault maintains safe leverage ratios through automated monitoring:

• Target Health Factor: 1.5 (50% safety margin)
• Warning Threshold: 1.35 (triggers deleveraging)
• Critical Level: 1.3 (emergency deleveraging)
• Maximum Leverage: 3.3x hard cap

When health factor drops, the system automatically reduces positions to maintain safety.

Protocol Diversification

Risk is distributed across multiple vetted protocols:

• Never more than 50% allocation to any single protocol
• Only use established protocols (Suilend, Navi) with proven track records
• Continuous monitoring of protocol health and TVL

Whitelisted Pools Only

The vault operates exclusively with:

• Audited and established lending pools
• Major assets (SUI, LST) only
• No experimental or high-risk tokens
• Minimum $10M TVL requirement per pool

Emergency Controls

Multiple safety mechanisms protect users:

• Emergency Pause: Stops new deposits while allowing withdrawals
• Automatic Deleveraging: Reduces risk during market volatility
• Multi-signature Admin: Critical functions require multiple approvals
• Timelock Delays: Major changes subject to 24-72 hour delays

Liquidity Management

The vault ensures withdrawal availability through:

• Strategic position distribution
• Gradual unwinding for large withdrawals
• Multiple liquidity sources across protocols
• Reserve buffer maintenance

Oracle Security

Price feed reliability through:

• Multiple oracle sources (Pyth, Switchboard)
• Price deviation checks and validation
• Fallback mechanisms for oracle failures
• Conservative valuations during uncertainty

Transparent Operations

All risk metrics are publicly visible:

• Real-time health factor display
• Current leverage ratios
• Protocol allocations
• Historical risk events

User Recommendations

Best Practices

• Start with smaller amounts to understand the system
• Monitor your position during high volatility
• Understand that leveraged strategies amplify both gains and losses
• Consider long-term holdings for optimal results

Risk Disclosure

• Smart contract risks exist despite audits
• Market volatility can affect returns
• Past performance doesn't guarantee future results
• Principal value can decrease

Continuous Improvement

The protocol continuously enhances risk management through:

• Regular security reviews
• Community feedback integration
• Market condition adaptations
• Protocol parameter optimization

For detailed security audits and reports, see our Audit page.