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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.