# Safety & Risk Management

LSD is designed with risk control and transparency as first-class principles.

Rather than chasing short-term yield, the protocol focuses on risk-adjusted performance, disciplined allocation, and clear user visibility.<br>

Safety is enforced through a combination of:

* Strategy constraints
* AI-assisted analysis
* Governance oversight
* On-chain execution

### Protocol & Validator Due Diligence

Before any protocol is considered for allocation:

* Protocols must be proposed through governance
* AI evaluates protocol health using on-chain data
* Preference is given to:
  * High TVL and liquidity
  * Proven operational track record
  * Consistent revenue and usage
  * Clear withdrawal mechanics

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For the Safe Strategy, allocations are restricted to protocols with TVL above $1B and strong historical reliability.

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### AI-Assisted Risk Monitoring

LSD uses an AI analysis engine to continuously monitor integrated protocols for:

* Yield stability
* TVL changes and concentration risk
* Incentive sustainability
* Liquidity and exit conditions
* Structural or behavioral changes in the protocol

AI outputs are advisory only and operate within strict strategy limits.

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### Strategy-Based Risk Limits

All SOL allocations must respect the active pool-wide strategy:

* Safe Strategy
  * 100% allocation to low-risk, established protocols
* Balanced Strategy
  * Up to 30% allocation to higher-yield, moderate-risk protocols
* Max Returns Strategy
  * Up to 50% allocation to higher-risk, incentive-driven protocols

The AI cannot exceed these limits, regardless of potential yield.

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### Epoch-Based Risk Control

* Allocations are reviewed continuously
* Changes are applied only once per Solana epoch (\~2–3 days)<br>

Rebalancing occurs only when:

* Risk-adjusted returns materially improve
* Risk thresholds are breached
* Structural changes occur in the staking environment<br>

This prevents over-trading and reduces operational risk.

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### Automatic Exposure Reduction

If elevated risk conditions are detected:

* Exposure to affected protocols may be reduced
* New allocations may be paused
* Rebalancing favors safer protocols at the next epoch

All actions follow predefined rules and governance-approved constraints.

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### User Transparency & Reporting

#### What Users Can See

Users have clear visibility into:

* Current pool-wide strategy
* Allocation breakdown by protocol
* Historical staking performance
* Realized vs projected returns
* Rebalancing actions and rationale
* On-chain contract addresses for verification

All critical state is verifiable on-chain.

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### Key Risk Disclosures

* LSD does not guarantee returns
* Higher yield strategies involve higher risk
* Strategy selection affects the entire pool
* AI provides analysis, not autonomous execution<br>

Users are encouraged to choose strategies that match their risk tolerance.

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### Design Principle

Transparency is not optional.

Every allocation decision, constraint, and outcome is designed to be observable, explainable, and verifiable.