# How It Works

## Overview

When you deposit into Paravel, your capital is managed by an autonomous system of AI agents.

The system continuously:

* Finds yield opportunities
* Allocates capital across strategies
* Monitors risk and performance
* Rebalances positions in real time

You do not select strategies or manage positions manually.

***

## Step-by-Step Flow

### 1. Deposit

You deposit **USDC or ETH** into a Paravel vault.

In return, you receive **iPrVL tokens**, which represent your share of the vault.

***

### 2. Market Analysis Begins

Once deposited, the system begins continuous analysis of:

* Yield opportunities across DeFi
* Liquidity conditions
* Volatility and risk levels
* Market sentiment signals

This happens in real time.

***

### 3. Capital Allocation

A dedicated allocation layer decides where capital should go.

It:

* Identifies the best-performing strategies
* Allocates capital across multiple agents
* Adjusts allocations based on changing conditions

No single strategy controls the vault.

***

### 4. Execution by Atomic Agents

Capital is deployed to **Atomic Agents**.

Each agent:

* Executes one specific strategy
* Operates within strict rules
* Can only interact with pre-approved contracts

Agents cannot deviate from their defined behavior.

***

### 5. Continuous Monitoring

All positions are monitored continuously.

The system tracks:

* Performance
* Risk metrics
* Liquidity conditions
* Market changes

If a strategy begins to underperform:

> Capital is automatically reduced or removed.

***

### 6. Reallocation

Freed capital is immediately reassigned to stronger opportunities.

This ensures the vault is always:

* Moving toward higher-performing strategies
* Avoiding deteriorating positions
* Actively adapting to market conditions

***

### 7. Compounding

Profits generated by strategies are:

* Reinvested automatically
* Redistributed across active agents

This enables continuous compounding without user intervention.

***

### 8. Withdrawal

You can redeem your position at any time by burning your **iPrVL tokens**.

* Withdrawal requests are processed through a controlled exit system
* A manual safety review may apply (up to 72 hours)
* Funds are returned to your wallet after settlement

This is designed to ensure safe unwinding of active positions.

***

## Security Model

All execution is constrained at the smart contract level.

### Permissioned Execution

All on-chain actions go through a verified contract system:

> Only pre-approved contracts and actions are allowed.

This is enforced via:

* `ManagerWithMerkleVerification.sol`
* Merkle Tree–based allowlists of valid operations

Agents cannot execute arbitrary transactions.

***

## AI System Components

Paravel uses a hybrid intelligence stack:

### Quantitative Models

* Neural networks
* XGBoost models
* High-frequency (5-minute) market data

Used for:

* Yield prediction
* Volatility estimation
* Strategy selection

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### Qualitative Models

* Large language models
* Sentiment analysis via AWS Comprehend
* Data from X, Discord, Dune, DeFiLlama

Used for:

* Market sentiment tracking
* Narrative detection
* Early signal identification

***

## Vault Parameters

Each vault operates within defined risk constraints.

### USDC Vault

* Target: >10% annualized net yield
* Risk constraint: low volatility profile
* Max daily loss: 0.5%
* Objective: stable yield generation

***

### ETH Vault

* Target: >6% annualized net yield
* Risk constraint: moderate volatility exposure
* Max daily loss: 0.5%
* Objective: ETH-denominated growth

***

## Key Idea

You are not selecting strategies.

You are allocating capital to a system that:

* Continuously evaluates opportunities
* Dynamically reallocates capital
* Enforces strict risk constraints
* Adapts in real time to market conditions

> Deposit once. The system manages everything continuously.


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