Risk Framework
Risk & Proof — Step 1 of 4
The AlphaPing Risk Framework defines the constraints, controls, and enforcement mechanisms governing the operation of mandate-driven, non-custodial on-chain credit vaults, including the allocation of capital among mandate-approved markets.
The framework is designed to ensure that credit exposure operates strictly within predefined boundaries across market conditions. It governs what is permitted, how risk is enforced, and how downside scenarios are handled, without reliance on discretionary decision-making or custodial control.
This framework applies uniformly across all AlphaPing-operated vaults and is enforced through protocol-level mechanics and on-chain execution rather than subjective intervention.
Risk Philosophy
AlphaPing treats risk as a function of predefined constraints enforced through on-chain mechanics. Risk is defined in advance through explicit mandates and applied continuously across market conditions.
The framework prioritizes determinism, isolation, and rule-based enforcement over discretionary decision-making or outcome optimization. Where mandates permit allocation among approved markets, adjustments occur strictly within predefined bounds and according to established rules.
Risk management is designed to function consistently under normal and stressed conditions, with outcomes determined by mandate parameters and protocol behavior rather than operator judgment.
Risk Domains
AlphaPing categorizes and manages risk through defined domains, each governed by explicit controls and enforced through mandate constraints, protocol mechanics, and on-chain execution. Risk is not mitigated through prediction or discretion, but through predefined boundaries and continuous enforcement.
| Risk Domain | Description | Control Mechanism | Enforcement Layer |
|---|---|---|---|
| Market Risk | Risk arising from price movements of supplied, borrowed, or collateral assets. | Over-collateralization requirements, LLTV thresholds, asset eligibility constraints. | Mandate Layer / Protocol Layer |
| Liquidity Risk | Risk that withdrawals or reallocations cannot be executed due to insufficient on-chain liquidity. | Liquidity constraints, utilization limits, exit rules defined per mandate. | Mandate Layer / Protocol Layer |
| Collateral Risk | Risk of collateral value deterioration, depegging, or structural failure. | Eligible collateral lists, concentration limits, protocol-defined valuation mechanisms. | Mandate Layer / Protocol Layer |
| Allocation Risk | Risk arising from distribution of exposure across multiple mandate-approved markets. | Predefined market eligibility, exposure bands, rule-based rebalancing thresholds. | Mandate Layer / Operation Layer |
| Liquidation Risk | Risk of loss during liquidation events triggered by collateral value or parameter breaches. | Protocol liquidation mechanics, ex-ante triggers, no discretionary delay or override. | Protocol Layer |
| Protocol Risk | Risk of smart contract failure, governance changes, or protocol-level incidents. | Protocol selection, configuration within mandate, continuous compatibility monitoring. | Operation Layer / Protocol Layer |
| Operational Risk | Risk of errors in configuration, execution, or monitoring of vault operation. | Standardized deployment processes, monitoring, separation of duties. | Operation Layer |
| Settlement & Network Risk | Risk arising from blockchain congestion, reorgs, or delayed transaction execution. | On-chain execution, transaction confirmation requirements, no off-chain settlement assumptions. | Protocol Layer / On-Chain State |
| Accounting & Reporting Risk | Risk of misrepresentation or delay in reflecting realized outcomes. | On-chain accounting, public state verification, no discretionary reporting. | On-Chain State |
Mandate Constraints and Enforcement
Mandate constraints define the boundaries within which each vault operates. Constraints are established in advance, configured per mandate where applicable, and enforced through protocol mechanics and on-chain execution. They determine what actions are permitted, how exposure may be allocated among approved markets, and how downside scenarios are handled, without discretionary overrides or custodial control.
| Constraint Type | Description | Configurable per Mandate | Enforced How |
|---|---|---|---|
| Asset Eligibility | Defines which assets and markets are permitted for supply, borrowing, or collateral. | Yes | Mandate definition and protocol configuration |
| Over-Collateralization Only | Credit exposure must be secured by collateral exceeding borrowed value at all times. | No | Protocol LLTV parameters and liquidation mechanics |
| LLTV Thresholds | Maximum loan-to-value thresholds applied to collateral positions. | Yes | Protocol parameters and continuous on-chain checks |
| Market Eligibility | Defines which protocol markets are approved for allocation. | Yes | Mandate configuration and operation layer enforcement |
| Allocation Bands | Defines minimum and maximum exposure per approved market. | Yes | Rule-based allocation limits and enforcement logic |
| Rebalancing Rules | Defines when and how exposure may shift between approved markets. | Yes | Predefined thresholds and rule-based execution |
| Liquidity Constraints | Defines withdrawal, utilization, and exit constraints under normal conditions. | Yes | Protocol mechanics and mandate rules |
| Concentration Limits | Limits exposure to single assets, markets, or counterparties. | Yes | Mandate constraints and allocation enforcement |
| Liquidation Triggers | Defines conditions under which liquidation is initiated. | No | Protocol-defined liquidation logic |
| Discretionary Overrides | Ability to override mandate or protocol rules. | No | Explicitly prohibited |
| Custody of Assets | Custodial control over user assets. | No | Explicitly excluded by design |
Risk Enforcement Mechanics
Risk enforcement within AlphaPing-operated vaults is implemented through a combination of mandate configuration, protocol-level parameters, and continuous on-chain execution. Constraints defined at the mandate level are translated into enforceable mechanics at deployment and remain active throughout the lifecycle of the vault.
Enforcement occurs continuously rather than through periodic review. Exposure limits, allocation bands, collateral thresholds, and liquidation conditions are checked and applied based on on-chain state and protocol rules, without reliance on discretionary intervention or manual approval.
Where mandates permit allocation across multiple approved markets, adjustments are executed strictly within predefined bounds and according to established rules. Execution may be automated or semi-automated, but always constrained by mandate parameters and protocol mechanics rather than subjective judgment.
AlphaPing does not override protocol behavior, delay liquidation triggers, or intervene outside permitted mandate actions. Outcomes are determined by the interaction of mandate constraints, protocol logic, and on-chain conditions.
Liquidation & Downside Handling
Liquidation and downside handling within AlphaPing-operated vaults are governed by predefined mandate constraints and protocol-level mechanics. Liquidation processes are triggered automatically when conditions are breached and are executed according to protocol rules, without discretionary delay, manual override, or custodial intervention. Outcomes depend on market conditions, liquidity, and protocol behavior.
| Scenario | Trigger | Mechanism | Outcome |
|---|---|---|---|
| Collateral Value Decline | Collateral valuation falls below mandate-defined LLTV threshold. | Protocol-defined liquidation is triggered automatically based on on-chain pricing and parameters. | Collateral is liquidated according to protocol mechanics; losses may be realized depending on market conditions. |
| Allocation Band Breach | Exposure exceeds predefined allocation limits due to market movement or utilization changes. | Rule-based rebalancing or exposure reduction within mandate-approved markets. | Exposure is adjusted within mandate bounds; no allocation outside approved markets. |
| Liquidity Stress | Insufficient on-chain liquidity to support withdrawals or reallocations. | Execution follows protocol liquidity availability and exit mechanics. | Withdrawals or reallocations may be delayed or partially executed; no discretionary intervention. |
| Rapid Market Dislocation | Sudden price movements or volatility spikes. | Continuous on-chain enforcement of collateral thresholds and liquidation rules. | Liquidations may occur rapidly; outcomes reflect protocol execution and market depth. |
| Protocol-Level Liquidation Event | Protocol-specific liquidation or emergency mechanism is activated. | Execution follows protocol governance and smart contract logic. | Outcomes depend on protocol behavior; AlphaPing does not override or modify protocol execution. |
| Network or Execution Constraints | Blockchain congestion or execution delays affect transaction ordering or timing. | Transactions are submitted on-chain and executed when confirmed. | Liquidation timing and realized outcomes may be affected by network conditions. |
Accounting & Loss Treatment
Accounting within AlphaPing-operated vaults reflects realized outcomes as recorded on-chain. Positions, transfers, liquidations, and losses are recognized based on protocol execution and blockchain state, without discretionary adjustment, smoothing, or off-chain reconciliation.
Losses, where they occur, are realized through protocol-defined mechanisms and are reflected directly in vault accounting. AlphaPing does not defer, absorb, or redistribute losses, and does not provide guarantees or compensation.
Detailed treatment of accounting, loss realization, and reporting is described in the Accounting & Loss Treatment section.
Stress & Exceptional Conditions
The AlphaPing Risk Framework is designed to operate consistently across normal and stressed market conditions. Risk constraints, enforcement mechanics, and mandate boundaries remain active during periods of elevated volatility, liquidity contraction, and rapid repricing.
There is no separate “stress mode,” discretionary intervention, or manual override process. Enforcement continues according to mandate rules and protocol mechanics, with outcomes determined by on-chain execution and market conditions.
Observed behavior during historical stress periods is documented based on executed on-chain activity and is available in the Stress Proof section.
What the Risk Framework Does Not Do
The AlphaPing Risk Framework defines constraints and enforcement mechanisms, but it does not eliminate risk or guarantee outcomes.
Specifically, the framework does not:
- Prevent losses, liquidations, or adverse market outcomes.
- Guarantee liquidity, pricing, or execution under all market conditions.
- Predict market movements or optimize for returns.
- Override protocol behavior, smart contract logic, or on-chain execution.
- Provide insurance, loss absorption, or compensation.
- Replace independent due diligence by partners or participants.
The framework is intended to define and enforce boundaries, not to assure performance or remove risk inherent in on-chain credit markets.
Applicability Across Vault Types
The AlphaPing Risk Framework applies uniformly across all AlphaPing-operated vaults, including Core and Enhanced vault types. The framework itself does not change based on vault classification.
Differences between vault types arise from mandate configuration, such as asset eligibility, allocation limits, collateral parameters, and liquidity constraints, rather than from different risk rules or enforcement mechanisms.
This ensures consistent risk governance, enforcement discipline, and accounting treatment across all vaults, while allowing mandates to be tailored to specific risk profiles within the same operational framework.
Next: Collateral & Liquidation
Next steps
For deeper detail on enforcement, accounting outcomes, and observed stress behavior, review the sections below: Accounting & Loss Treatmentand Stress Proof.