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Risk Management

How the AI Bot protects capital and minimizes losses.

The bot incorporates multiple layers of risk control to avoid excessive drawdowns and protect the pool.

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Position Sizing Rules

  • Max per trade: 5% of capital allocated to bot

  • Diversification: Multiple simultaneous strategies

  • Dynamic sizing: Adjusted by current volatility

  • Conservative approach: Smaller trades in uncertain markets

Example: Bot Capital: $100,000 Max per trade: $5,000 Typical trade: $2,000-3,000

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Stop Loss System

  • Hard stop loss: 2% maximum loss per trade

  • Trailing stops: On winners to protect gains

  • Time-based stops: Closes if trade takes too long

  • Volatility-adjusted: Wider stops in high vol

Example: Entry: $1,000 position Stop Loss: $980 (2% max loss) If price drops to $980 → immediate auto-exit

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Global Risk Limits

Daily Limits:

  • Max daily loss: 5% of bot capital

  • Max daily trades: 300

  • Circuit breaker: Pause after 10 consecutive losses

Portfolio Limits:

  • Max exposure: 25% of pool's total TVL

  • Mandatory diversification (minimum 3 active pairs)

  • Correlation monitoring: Avoids over-exposure to one asset

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Bot Emergency Procedures

Auto-Pause Triggers:

  • Unusual volatility detected

  • Consecutive losses exceed threshold

  • Technical issue detected (e.g., oracle failure)

  • Manual admin override

Manual Controls:

  • Emergency stop button (multi-sig)

  • Gradual position reduction

  • Safe mode: Only low-risk positions

  • Multisig requirements for reactivation

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Recovery Mechanisms

  • Average Recovery Time: <24 hours after drawdown

  • Controlled drawdown: Never above 5% historical

  • Bot funds segregated from pool reserve

Commitment: The bot prioritizes capital preservation over profit maximization. Risk parameters are hard-coded and not alterable without audited upgrade.

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