Risk Management Framework

AFI’s Risk Management Framework is foundational to the design of afiUSD, ensuring capital is deployed in a secure, responsible, and resilient manner. The framework proactively mitigates critical risk vectors through a combination of technical safeguards, protocol whitelisting, real-time monitoring, and strict eligibility criteria.

1. Smart Contract Risk

AFI adopts a multi-layered defense approach to secure its smart contract infrastructure:

• Tier-1 Audits: All smart contracts are subjected to top-tier audits by leading firms like Spearbit and Cantina, with additional audits in the pipeline.

• No Idle Capital: User funds are never left vulnerable in manager contracts. They are immediately routed to approved strategy contracts for further deployment.

• Controlled Deployment: Only whitelisted, battle-tested contracts are eligible to receive funds from AFI’s vaults, reducing surface area for attack.

2. Underlying Asset Risk

To manage exposure to underlying asset risks, AFI follows strict capital allocation rules:

• Protocol Selection: Deployment is limited to blue-chip DeFi protocols with proven track records.

• Market Filters: Strategies are only considered if:

  • The asset’s protocol has TVL > $100M

  • The asset has DEX liquidity > $5M

This ensures exposure is limited to high-confidence assets and liquid markets.

3. Counterparty Risk

AFI evaluates counterparty risk through a detailed Smart Contract Custody Risk assessment, taking into account:

• Audit Maturity:

  • Minimum of 3 independent audits

  • Preference for protocols with active bug bounty programs

• Protocol Longevity: Minimum 6 months of active contract use.

• Bridge Infrastructure: Only trusted bridge protocols like LayerZero and CCIP are used.

• Oracle Design: Dynamic and robust oracle integrations are preferred over hardcoded logic.

• Operational Simplicity: Systems with lower complexity are prioritized to reduce failure risk.

4. Liquidity Risk

AFI ensures adequate liquidity buffers for both entry and exit from positions:

• Minimum On-Chain Liquidity: Only assets with $5M+ in DEX liquidity qualify for deployment.

• Redemption Horizon: All underlying protocols must offer native redemption paths within defined timelines — e.g., instant, <2 days, <7 days, or <14 days — ensuring orderly unwinds if necessary.

5. Whitelisted Transfers

AFI’s Manager Contract enforces strict fund movement controls:

• Only whitelisted strategy contracts or custody addresses can receive capital.

• All unauthorized transfer attempts are automatically blocked at the contract level.

6. Emergency Controls

All AFI contracts feature pause functionality to act swiftly in case of threats:

• Can be activated on-chain or by the executor.

• Temporarily disables deposits and withdrawals.

• Allows the team to analyze, resolve, and re-audit before resuming normal operations.