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 base assets, avAssets, and their 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.

avAssets (e.g., avUSD) share the same Senior Tranche position. In a loss event, they are protected by the same layers. savAssets are the yield-bearing, staked form of the same senior capital.

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

The protocol applies diversification across three vectors to manage concentration:

• Strategy: Exposure is distributed across multiple yield strategies where available.

• Protocol: Allocation to any single external DeFi protocol is limited to reduce counterparty exposure.

• Asset: Concentration in any single asset type is actively managed.

The protocol sizes allocations according to its assessment of each asset and counterparty. Concentration thresholds are calibrated to the assessed credibility of each, informed by track record, liquidity depth, and protocol maturity.

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.