Risk Simulation Layer

SOV_005Risk Lattice

A forward-looking stress simulation engine that runs against live protocol state on every evaluation cycle. SOV_005 is not a monitoring tool — it is a structural risk layer that projects protocol survival across 5,000+ scenarios over a 5-year horizon. Results are embedded in every AUD_001 audit package.

5-YEAR HORIZON · 5,000+ SCENARIOS · PUBLISHED IN AUD_001
Simulation Layer

What SOV_005 does

SOV_005 answers a different question than SOV_001 or SOV_003. Those pillars evaluate current state: is the protocol solvent right now? SOV_005 evaluates projected state: does the protocol survive what comes next?

FORWARD
Simulation runs forward from the current protocol state. It does not evaluate whether the system is healthy today — it models whether it remains viable under adversarial future conditions over a 5-year horizon.
STRUCTURAL
SOV_005 is not a one-time test. It runs on every engine evaluation cycle against live chain state: current collateral, current debt, current oracle price, current CR. The inputs are real. The scenarios are applied to them.
EVIDENCE
Every simulation result is embedded in the AUD_001 audit package as sov_005_verdict. It is SHA-256 hashed and committed to the public repository alongside the full package. Verifiable independently of this interface.
Simulation Model

Five axes. Simultaneous.

The lattice evaluates all combinations of five orthogonal stress dimensions applied simultaneously to current protocol state. Each scenario represents a distinct adverse future — not a single variable changing in isolation.

LIQUIDITY SHOCKSimulates rapid deterioration in collateral liquidity. Models conditions where WETH exit velocity exceeds absorption capacity — forced liquidations cascade, collateral value erodes faster than debt can be retired. Tests whether the protocol's liquidation mechanics hold under accelerated vault closure.
PEG DEVIATIONSimulates sustained NXUSD depeg from target value. Tests whether the protocol's CR floor and liquidation incentive structure can absorb market-driven deviation without triggering a reflexivity spiral. Includes recovery scenarios and scenarios where the peg does not recover.
NAV HAIRCUTSimulates severe collateral depreciation — multi-sigma ETH price drawdown applied directly to the collateral pool. Tests whether the protocol maintains CR above survival thresholds when the value of locked collateral contracts rapidly. Represents the most direct solvency stress.
LEVERAGE SPIKESimulates protocol-wide debt expansion faster than collateral growth. Models mass mint events: users maximizing NXUSD issuance before CR enforcement triggers. Tests whether Capital Adequacy Law thresholds contain the exposure before the system crosses into SOV_001 territory.
CORRELATION BREAKDOWNSimulates simultaneous adverse moves across multiple risk factors that are normally uncorrelated. The most severe scenario class. Tests portfolio resilience when diversification assumptions fail — liquidity dries up, collateral falls, and debt demand collapses in the same period.
Lattice Mechanics
StructureEach axis is discretized into stress levels. All combinations are evaluated simultaneously — not sequentially. The result is a multi-dimensional lattice of 5,000+ scenarios, each representing a distinct adverse trajectory applied to the current protocol state.
HorizonEach scenario is projected forward 5 years from the current state. The simulation evaluates whether the protocol maintains survival thresholds at each point along the trajectory, not just at the terminal year.
Pass conditionSOV_005 PASS means the protocol survives all evaluated scenarios above the defined survival threshold. A single scenario breaching the threshold constitutes a SOV_005 FAIL.
Live inputsSimulation runs against the current chain state snapshot: actual collateral, actual debt, actual CR, actual oracle price. The lattice is not applied to synthetic or historical data — it stress-tests what exists now.
Result Publication

Results in every receipt

SOV_005 does not produce a private signal. Every simulation result is written into the AUD_001 audit package alongside the full chain state snapshot, hashed, and committed to the public repository.

In the AUD_001 Package
sov_005_verdict"PASS" or "FAIL" — the simulation outcome for this cycle
block_numberChain state the simulation ran against
collateral_ratio_pctCR at time of simulation — the primary input
eth_price_usdOracle price used as collateral valuation baseline
overall_verdictSeparate from SOV_005 — see verdict relationship below
package_hashSHA-256 over canonical JSON — includes SOV_005 result
How to Access Results
API/api/receipts — returns the latest 10 packages. Each item contains sov_005_verdict alongside all other pillar results and chain state.
RepositoryNEXUS120-Official/nexus-receipts/packages/ — canonical source. All packages accessible directly without API access. Verify by recomputing SHA-256 over the raw field.
TrendAggregate sov_005_verdict across packages to track simulation stability over time. A sustained FAIL across consecutive packages indicates the current protocol state is vulnerable under stress conditions.
Live viewSOV_005 pass/fail is visible in the live status panel on /status alongside SOV_001 and SOV_003.
Verdict Relationship

Informing, not gating.

SOV_005 influences system understanding but does not determine the immediate overall verdict. This is a deliberate design choice — simulation and current-state enforcement are separate concerns.

FAILSOV_001 failing → overall_verdict: FAIL

SOV_001 (Economic Constitution) is the hard solvency gate. When it fails, the overall verdict is FAIL regardless of SOV_003 or SOV_005. SOV_005 result is still recorded in the AUD_001 package but has no effect on the verdict. Current-state insolvency takes precedence over forward simulation.

WARNSOV_003 failing (SOV_001 passing) → overall_verdict: WARN

When SOV_003 (Capital Adequacy) fails while SOV_001 passes, the verdict is WARN. The protocol is degraded but not insolvent. Again, SOV_005 result is recorded but does not change the verdict. A WARN verdict with SOV_005 FAIL indicates both current degradation and projected stress vulnerability.

PASSAll current-state pillars passing → overall_verdict: PASS

When SOV_001 and SOV_003 both pass, the verdict is PASS. SOV_005 is recorded in the package but does not affect this verdict. A PASS verdict with SOV_005 FAIL is a meaningful signal: the system is healthy now but vulnerable under simulated stress. This is the intended use case for SOV_005 — surfacing forward risk before it becomes a current-state SOV_003 or SOV_001 failure.

WHYWhy SOV_005 does not gate the verdict

Stress simulation is inherently probabilistic and forward-looking. Halting the protocol every time a simulated 5-year scenario fails would make the system unoperatable under normal conditions — all protocols are vulnerable to some sufficiently extreme stress scenario. SOV_005 is designed to be read by risk analysts, not to trigger automatic protocol actions. Its value is in the audit record, not the verdict field.

Live Context

Current state the simulation runs against

SOV_005 uses the state below as its inputs. Collateral ratio, oracle price, and total debt are the primary variables the lattice stress-tests. This panel reflects what the simulation received on the last engine run.

LIVE SYSTEM STATUS — ARBITRUM SEPOLIA
Block
ETH/USD
Collateral
Total Debt
CR
SOV_001
SOV_003
SOV_005
Verdict
Last sync
SOV_005 pass/fail is shown in the panel above under the pillar rows. For the full simulation result including scenario details, see the latest AUD_001 package in the Audit Evidence Layer →
Testnet Observation

Observe the system under real conditions

The steps below allow you to alter live protocol state on Arbitrum Sepolia and observe how the system — including SOV_005 — responds. Opening a vault, adjusting collateral, and approaching liquidation thresholds are inputs to the next engine evaluation cycle.

STEP 01
GET TESTNET ETH
→Visit sepoliafaucet.com
→Request Arbitrum Sepolia ETH
→You need ~0.05 ETH for gas + collateral
STEP 02
WRAP ETH → WETH
→Visit WETH on Arbiscan: WETH Contract
→Call deposit() with 0.01 ETH value
→WETH: 0x980B62Da83eFf3D4576C647993b0c1D7faf17c73
STEP 03
OPEN A VAULT
→Go to /testing
→Connect wallet and deposit WETH as collateral
→Your collateral becomes part of the protocol-wide CR that SOV_005 runs against
STEP 04
MINT NXUSD — STRESS THE CR
→Mint close to the maximum (66% of collateral value at current price)
→Watch your CR drop toward the liquidation threshold (130%)
→This directly lowers the protocol CR that the stress lattice evaluates
STEP 05
OBSERVE THE NEXT ENGINE CYCLE
→Wait for the next AUD_001 package (hourly via GitHub Actions)
→Check sov_005_verdict in the latest receipt on /receipts
→Note: oracle is stale on testnet — SOV_003 FAIL is expected. SOV_005 runs regardless.
STEP 06
APPROACH LIQUIDATION THRESHOLD
→Mint more NXUSD until CR approaches 130%
→Observe how the system classifies your vault on /liquidations
→A very low CR will shift the SOV_005 simulation inputs toward higher-stress scenarios
The simulation runs. The receipts are real.

Every SOV_005 result is published in the AUD_001 audit package, SHA-256 hashed, and independently verifiable. The simulation is not a preview — it is evidence.

View Simulation Results →Protocol Intelligence Layer →