Risk Management

Amulet's risk management can be broken down into several key functions:

1. Capital adequacy and management

• Adhering with Solvency II requirements creates a desirable level of safety when underwriting risk. It builds a protective moat around Amulet's capital base and ensures there is sufficient reserves for making claim payouts.

2. Layered risk controls

Several layers of risk controls have been built into Amulet to ensure funds are safe and that the business remains sound:

• Technical checks to ensure base level protocol safety, including code auditing, bug bounty program, and continuous testing.

• Careful selection of protocols to be covered through rigorous risk assessment.

• Identifying over-concentration of risk from the chain level down to individual product level and risk types in order to avoid catastrophic drawdowns by certain covers.

  • The capacity of a product is supported by capital in the common underwriting pool and its own product underwriting pool (For details, please refer to Underwriting Mining)

  • Capital in the common underwriting pool will be shared among all products and allocated based on the risk of the product. Product with lower risk will get higher capacity.

  • A multiplier will be applied to calculate the capacity generated from the individual product underwriting pool. Product with lower risk will get a higher multiplier.

  • The total capacity of the product calculated by adding the two above is then caped by a concentration ratio to prevent Amulet from overselling a specific product which can cause insolvency if a large pay-out is required. Example, if the total capacity of Amulet is 10M with the concentration ratio set to 10%, the max capacity of each product will be 1M.

• Mechanisms such as an emergency kill-switch to suspend all or some business activities to head-off suspicious transactions.

• Clear cover terms and conditions properly detailing the scope of coverage and claims process amongst other particulars.

3. On-chain risk alerts

On-chain data monitoring, analysis, and alerts serve as timely and valuable signals for Amulet to respond rapidly, such as notifications of covered protocols' security status, cover product price adjustments, or the occurrence of a risk event. Amulet has adopted many best practices in this area and continues to work with several other projects to enhance its risk monitoring capabilities.