House Exposure Analysis¶

The HouseBuffer earns fees and provides float. It does not insure against market losses. This section quantifies the house's actual exposure under different scenarios.

Revenue Model¶

Daily fee income = dailyRedemptionVolume × liquidityFeeBps / 10000

// At $2M TVL, 1% average daily redemption:
// Daily volume  = $20,000
// Daily fee     = $20,000 × 0.005 = $100
// Monthly fee   = ~$3,000
// Annual fee    = ~$36,500

// House capital committed (buffer at 12% of TVL): $240,000
// Fee ROI on house capital: ~15% annually

Yield Leakage on Market Failure¶

One Position Written Off (25% of deployed capital)¶

Vault: $2M TVL, 4 equal positions of $425K each, 15% idle
Position in Slot 2 fails after 30 days
Total redeemed in 30 days at ~1% daily: ~$600K

Those redemptions were priced assuming all 4 positions were healthy.
After write-off, Slot 2 is worth $0.

Remaining vault NAV:
  $425K × 3 + $300K idle − $600K redeemed = ~$975K
Loss absorbed by remaining holders: ~30% of share value

Two Positions Written Off (50% of deployed capital)¶

Same vault. Slots 2 and 3 both fail.
Remaining holders lose ~60%+ of share value.

All Four Positions Written Off¶

Near-total loss. Only idle USDC remains.
Remaining holders get back ~15% (the idle reserve).
House: all topups lost. Fee income gone. Buffer impaired.

House is not an insurance fund

The house must not be sized to survive all four positions failing. That is a catastrophic scenario where the entire investment thesis was wrong. The house provides liquidity services, not tail risk insurance. This must be clearly communicated to the house operator.

Maximum Daily Leakage¶

maxDailyPremium = dailyCap × gap × integral((1-x)², 0, 1)
               = dailyCap × gap / 3

// At 200 bps daily cap and 500 bps gap:
// maxDailyPremium = 2% × 5% × (1/3) = 0.033% of TVL = $666 on $2M
// Over 30 days: ~$20,000 maximum cumulative leakage

This quantifies the maximum benefit early redeemers extract from the gap when the redemption curve is applied. The leakage is bounded because the curve limits how much can exit at the modeled price each day.

House Buffer Sizing Recommendation¶

maxPotentialTopups:
  If vault reserve drops to 50% of target,
  house may need to topup ~7.5% of TVL over the stress period.
  At $2M TVL: ~$150,000 maximum topup exposure

operationalMargin:
  3 months of reduced fee income
  At reduced TVL of $1.4M: ~$7,500

Recommended buffer: 12–15% of peak TVL
  At $2M TVL: $240,000–$300,000

House Recovery After Losses¶

After a position write-off, the house recovers through continued fee collection on the surviving vault TVL:

Vault TVL after one write-off: ~$1.4M
Daily fee (at 1% redemption):  ~$70/day

If house lost $50K in topups:
  Recovery from fees alone: ~700 days

The house operator may need to inject capital (via fund()) to maintain
the buffer at target levels during the recovery period.

Summary: What the House Is and Is Not¶

Role	Description
✅ Fee earner	Collects 0.5% on every vault redemption — ~15% ROI on committed capital at $2M TVL
✅ Float provider	Provides short-term reserve topups when vault cash runs low
✅ System stabilizer	Smooths temporary reserve drawdowns without triggering emergency liquidation
❌ Loss insurer	Does NOT cover market losses from YES resolutions
❌ Tail risk backstop	Not sized to survive catastrophic multi-position failure