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:
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:
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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