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 asset (e.g., savUSD).

Senior Tranche (savUSD)

This represents the most protected capital pool in the protocol. Holders of savUSD have seniority, meaning their assets are shielded from the initial impact of any potential strategy losses. This structural protection makes savUSD the lowest-risk asset for earning yield within the Avant ecosystem.

Junior Tranche (avUSDx)

This tranche functions as the protocol's first-loss capital. It is designed to absorb losses before the Senior Tranche is affected. In exchange for bearing this higher risk, the avUSDx 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.