Risk Management
HALO implements comprehensive risk management to protect depositor funds while maximizing returns.
Risk Framework
Our risk management system operates at multiple levels:
- Position-Level: Individual trade limits and stop losses
- Portfolio-Level: Diversification and correlation limits
- Vault-Level: Reserve buffers and withdrawal limits
- Protocol-Level: Smart contract security and audits
Position Limits
Maximum Position Size
Each market position is limited to prevent overexposure:
max_position = min(5% of vault, market_liquidity * 0.1)
This ensures:
- No single market can significantly impact vault performance
- Positions remain liquid and easily exitable
- Capital is diversified across opportunities
Stop Losses
Automatic stop losses trigger at:
stop_loss_price = entry_price * (1 - stop_loss_percentage)
Default stop loss is 10%, adjusted based on:
- Market volatility
- Time to resolution
- Model confidence
Stop losses protect against adverse price movements while allowing profitable trades to run.
Portfolio Risk
Diversification Requirements
The vault maintains:
- Minimum 5 active markets at all times
- Maximum 20% exposure to any single category
- Correlation limits between related markets
Correlation Matrix
We track correlations between markets and limit exposure to highly correlated positions:
portfolio_risk = √(Σᵢ Σⱼ wᵢ wⱼ σᵢ σⱼ ρᵢⱼ)
Where:
- w = position weights
- σ = volatility
- ρ = correlation
Liquidity Risk
Reserve Buffer
The vault maintains a reserve buffer:
reserve_buffer = max(30% of deposits, 7-day_withdrawal_forecast)
This ensures:
- Sufficient liquidity for withdrawals
- Ability to seize new opportunities
- Protection against bank runs
Withdrawal Limits
Large withdrawals may be subject to limits or delays to:
- Prevent gaming
- Maintain portfolio balance
- Protect remaining depositors
Model Risk
Confidence Thresholds
Trades only execute when:
model_confidence > 60% AND mispricing > 5%
Lower confidence trades are rejected to avoid model errors.
Model Monitoring
We continuously monitor:
- Prediction accuracy
- Model drift
- Feature stability
- Performance degradation
Model Updates
When model performance degrades, we pause trading and retrain before resuming operations.
Smart Contract Risk
Security Measures
- Audits: Regular third-party security audits
- Bug Bounties: Rewards for finding vulnerabilities
- Upgradeability: Controlled upgrade mechanism with timelocks
- Multisig: Critical functions require multiple signatures
Fund Security
- All funds held in audited smart contracts
- No admin withdrawal capabilities
- Transparent on-chain operations
- Emergency pause functionality
Market Risk
Volatility Limits
We avoid markets with:
- Extreme volatility (>50% daily swings)
- Low liquidity (<$10k daily volume)
- Suspicious activity patterns
- Regulatory concerns
Settlement Risk
Binary markets carry settlement risk:
- Oracle failures
- Disputed outcomes
- Market manipulation
- Technical issues
We mitigate by:
- Diversifying across multiple oracles
- Monitoring for anomalies
- Maintaining relationships with market operators
Operational Risk
System Monitoring
24/7 monitoring of:
- Trading system health
- API connectivity
- Smart contract events
- Performance metrics
Incident Response
In case of issues:
- Automatic pause of new positions
- Alert to operations team
- Assessment and remediation
- Transparent communication to users
Risk Metrics
Track risk through:
- VaR (Value at Risk): 95% confidence loss estimate
- Sharpe Ratio: Risk-adjusted returns
- Maximum Drawdown: Largest peak-to-trough decline
- Correlation Exposure: Portfolio correlation risk
All risk metrics are displayed on the dashboard for transparency.
Risk Disclosure
Important: All investments carry risk. HALO is not guaranteed to generate profits. Past performance does not guarantee future results. Only invest what you can afford to lose.
Next Steps
- Vault Mechanics - How the vault operates
- Glossary - Key terms and concepts