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Position Sizing Rules

Formula

deployableCapital = TVL × 85%             // 15% always reserved
maxPerPosition    = deployableCapital / activeSlots

actualAllocation  = min(maxPerPosition, marketDepthLimit)
marketDepthLimit  = NO_side_open_interest × 10%

Example at $2M TVL with 4 Slots

TVL                   = $2,000,000
deployableCapital     = $1,700,000    ($2M × 85%)
maxPerPosition (4×)   = $425,000      ($1.7M ÷ 4)

Market A: NO-side open interest = $3M
  marketDepthLimit = $300,000         ($3M × 10%)
  actualAllocation = min($425K, $300K) = $300,000

Remaining after market A: $1,700,000 - $300,000 = $1,400,000 idle
Effective reserve rises to: $300,000 + $1,400,000 = $1,700,000 idle
  (reserve is effectively higher than target when markets are shallow)

Constraint Priority

  1. Reserve target is inviolable — the operator cannot deploy below the reserve floor on-chain
  2. Market depth limit takes priority over the per-slot allocation formula if the market is shallow
  3. Per-slot formula is a ceiling, not a target — allocate less if market depth constrains

Multi-Slot Allocation

When filling multiple slots simultaneously, the operator should account for the fact that each successive position reduces the deployable capital for subsequent positions. The 85% cap applies to the aggregate, not independently per slot.

Under-Allocation

If all 4 slots cannot be filled (e.g., suitable markets are not available), it is correct to leave some deployable capital idle. A vault operating with 2 active positions at proper size is healthier than one with 4 positions sized too large for their markets.