Risk Management

Risk management at Avant Protocol is a systematic framework designed to identify, measure, and mitigate risks across all protocol activities. It complements the Operational Security framework and the Reserve Fund by establishing clear rules and structural safeguards for capital allocation.

The framework is built upon several key pillars that work in concert to ensure protocol stability and protect user assets.

Capital Structure & Tranches

A core element of Avant's risk design is having distinct tranches with different risk-and-reward profiles. This is a planned capital structure that segments risk and provides built-in protection for the primary yield-bearing assets, the savAssets.

Senior Tranche (savAssets)

The savAssets (e.g., savUSD) make up the Senior Tranche. This is the most protected capital pool in the protocol. "Seniority" means that in the event of a strategy loss, all other protective layers (the Reserve Fund, the future Governance Backstop, and the Junior Tranche) must be depleted before the Senior Tranche is affected. This structural protection makes savAssets the lowest-risk asset for earning yield within the Avant ecosystem.

Junior Tranche (avAssetX tokens)

The avAssetX tokens (e.g., avUSDx) make up the Junior Tranche. This tranche is "junior" to the Senior Tranche. Its role in the capital protection hierarchy is to absorb losses after the protocol's Reserve Fund but before the Senior Tranche. In exchange for being in this higher-risk position, the Junior Tranche is compensated with a potentially higher share of the yield. This mechanism effectively creates an internal insurance layer for savUSD holders.

Diversification and Allocation Limits

To prevent risk concentration, the protocol enforces strict diversification rules and allocation limits. These rules are applied across multiple vectors:

• Strategy Limit: A maximum percentage of the total portfolio can be allocated to any single yield strategy.

• Protocol Limit: Exposure to any single external DeFi protocol is capped to mitigate counterparty risk.

• Asset Limit: Concentration in any single type of asset is managed to avoid over-exposure to specific asset-related risks.

This disciplined approach ensures that a failure or underperformance in any one area has a limited impact on the overall portfolio.

Real-Time Threat Monitoring

The protocol's positions and all integrated external protocols are monitored 24/7 for security threats and anomalous activity. Avant utilizes industry-leading security partners, such as Hypernative, for real-time threat intelligence. This service provides immediate alerts for potential exploits, economic attacks, or risky governance actions, enabling a rapid defensive response to protect protocol assets.