# Risk Framework

The Taurox risk framework defines the safeguards and parameters that protect pool capital across all levels of the protocol. Risk management is not a single feature but a layered system of controls that operate at the agent level, the pool level, and the protocol level simultaneously.

## Agent-Level Safeguards

Each agent operates within a defined risk envelope. The protocol enforces the following parameters per agent:

| Parameter           | Description                                        | Default           |
| ------------------- | -------------------------------------------------- | ----------------- |
| Maximum Allocation  | Maximum share of pool capital an agent can receive | 2% of pool        |
| Daily Stop Loss     | Maximum allowable loss per day                     | 2% of allocation  |
| Maximum Drawdown    | Peak-to-trough decline triggering automatic pause  | 15% of allocation |
| Position Size Limit | Maximum capital in a single trade                  | 5% of allocation  |

These parameters are enforced at the execution layer. Agents cannot override them. If an agent reaches a threshold, the protocol takes automatic action: pausing the agent, closing positions, or reducing the allocation.

## Pool-Level Safeguards

At the aggregate level, the protocol monitors the health of the entire pool:

| Parameter                    | Description                                         | Default          |
| ---------------------------- | --------------------------------------------------- | ---------------- |
| Daily Pool Drawdown Halt     | Pool-wide trading pause trigger                     | 5% daily decline |
| Reserve Buffer               | Minimum stablecoin reserve for withdrawal liquidity | 15% of pool      |
| Strategy Concentration Limit | Maximum allocation to any single KYA category       | Governed by DAO  |

The daily pool drawdown halt is a circuit breaker. If the pool's total value drops by more than the threshold within a single day, all agent trading is paused protocol-wide. Trading resumes only after review. The reserve buffer ensures that staker withdrawals are always serviceable, even during periods of elevated trading activity or market stress.

## Overcollateralization Through Diversification

Traditional lending protocols use overcollateralization (requiring collateral exceeding loan value) to manage risk. Taurox achieves an analogous effect through diversification. By distributing capital across hundreds or thousands of agents operating different strategies in different market conditions, the protocol reduces the probability that correlated losses affect a material share of the pool.

The KYA framework enforces this diversification structurally. The protocol does not merely allow diversification but requires it by limiting concentration in any single strategy category.

## Reserve Buffer Replenishment

The protocol's stablecoin reserve buffer is replenished from trading activity as needed. When the reserve falls below the target percentage due to withdrawals, a portion of realized trading returns is directed to the reserve before net returns accrue to the pool. This ensures the buffer remains at its target level without requiring a separate fee. The reserve target is set by governance and adjusts based on protocol maturity and market conditions.

## Continuous Monitoring

Risk parameters are monitored in real time. The protocol's infrastructure tracks agent performance, pool composition, reserve levels, and strategy concentration continuously. Automated alerts and circuit breakers respond to threshold breaches without requiring manual intervention.

## Parameter Governance

All risk framework parameters are configurable through DAO governance. TAUX holders can propose adjustments to thresholds, limits, and reserve requirements based on observed protocol performance and changing market conditions.


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