Allocation Engine
The Allocation Engine is the decision-support core of RAX Protocol.
It is designed to help users allocate capital in a disciplined manner by applying explicit risk constraints, strategy profiles, and real-time risk intelligence.
Rather than optimizing for maximum yield, the Allocation Engine prioritizes control, resilience, and capital efficiency.
Purpose of the Allocation Engine
The Allocation Engine exists to answer a critical question:
Given current conditions, where can capital be allocated responsibly within defined risk limits?
It translates risk analysis, exposure data, and simulations into actionable allocation suggestions.
Strategy Profiles
The Allocation Engine operates using strategy profiles that define the user’s risk posture.
Common profiles include:
Defensive, focused on capital preservation and stability
Balanced, targeting risk-adjusted efficiency
Aggressive, tolerating higher volatility for potential upside
Profiles do not execute trades automatically. They define boundaries and priorities.
Risk Constraints
Risk constraints are explicit limits applied to allocation decisions.
Examples of constraints include:
Maximum acceptable Risk Score
Drawdown tolerance
Volatility thresholds
Protocol or chain exposure limits
Liquidity minimum requirements
Constraints act as guardrails that prevent allocations outside acceptable risk boundaries.
Allocation Suggestions
Based on selected strategy profiles and constraints, the Allocation Engine generates allocation suggestions.
These suggestions may include:
Increasing or decreasing exposure to specific strategies
Rebalancing across protocols or chains
Reducing concentration in high-risk areas
Maintaining or increasing defensive positioning
All suggestions are advisory and require user approval.
Role of Risk-Adjusted Yield
Risk-adjusted yield is a key input to the Allocation Engine.
Strategies that deliver more return per unit of risk are favored, especially under defensive or balanced profiles.
Higher-yield strategies with weaker risk-adjusted performance may be deprioritized even if headline returns appear attractive.
Simulations and Validation
Before executing allocation changes, users can evaluate proposed changes using simulations.
Simulations help assess:
Potential downside under stress
Impact on portfolio risk metrics
Changes in exposure concentration
This validation step supports informed decision-making.
Human Oversight and Control
The Allocation Engine is designed with human oversight in mind.
It does not execute trades autonomously by default and does not remove user responsibility.
Users remain in control of:
Strategy selection
Constraint configuration
Execution decisions
This design ensures accountability and transparency.
Limitations
The Allocation Engine does not:
Guarantee improved performance
Eliminate risk
Replace judgment or governance
It is a structured decision-support system, not an autonomous fund manager.
Summary
The Allocation Engine transforms risk intelligence into controlled allocation guidance.
By combining strategy profiles, explicit constraints, and real-time analysis, it enables users to manage capital more deliberately in complex DeFi environments.
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