Risk And Management

​

Collateralization Safeguards

Aurum’s primary defense against market volatility lies in its conservative collateralization requirements:

• 200% Minimum Ratio: All positions must maintain at least 200% collateralization (2:1 ratio of collateral to debt)
• No Liquidation Mechanism: Unlike traditional lending protocols, Aurum does not implement liquidations
• Self-Healing Positions: As yield continuously reduces debt, positions naturally become more secure over time
• Conservative LTV: The 50% maximum loan-to-value ratio provides substantial buffer against market fluctuations

​

Oracle Implementation

Reliable price data is critical to protocol security. Aurum implements:

• Dual Oracle System:
  • Primary: Switchboard provides main price feeds
  • Secondary: Pyth serves as verification and fallback
  • Cross-validation logic ensures price accuracy
• Price Update Frequency: Regular price updates ensure the protocol operates with current market data
• Manipulation Protection: Outlier detection and time-weighted averaging prevent flash crashes or manipulation from affecting protocol operations

​

Exposure Limits

To manage protocol-wide risk, Aurum implements several capacity controls:

• Total Deposit Cap: Maximum SOL that can be deposited into the protocol
• Per-User Limits: Caps on individual position sizes to prevent concentration risk
• Utilization Targets: Managed allocation of deposits to different yield strategies
• TVL Growth Rate: Controlled expansion of protocol capacity to ensure stability

​

Drift Vault Risk Management

By integrating with Drift’s vault system, Aurum inherits several proven risk management features:

• Strategy Diversification: Exposure across multiple yield sources within Drift’s ecosystem
• Smart Contract Security: Leveraging Drift’s extensively audited and battle-tested infrastructure
• Liquidity Management: Careful balance between yield generation and withdrawal capabilities
• Monitoring Systems: Continuous oversight of vault performance and risk metrics

​

Contingency Planning

Aurum prepares for adverse scenarios through a comprehensive contingency framework:

• Emergency Shutdown: Protocol pause capability if critical issues are detected
• Graceful Withdrawal Process: Structured wind-down procedure to return user funds if necessary
• Reserve Fund: Planned allocation of protocol revenue to an insurance fund for addressing unforeseen events
• Response Team: Dedicated technical team available to address emergencies

This multi-layered approach to risk management ensures that Aurum can withstand market turbulence while protecting user assets and maintaining protocol stability.