Health Index Definition

1. Health Index Definition

The Health Index (HI) quantifies the ratio between the protocol’s total on-chain assets and its aggregate user deposit liabilities:

$\text{HI} = \frac{\text{Total value of Assets}}{\text{Total value of Liabilities}}$

• Assets: include all assets held across StakingVault, Treasury, IL Reserve Fund, Distributor and StrategyVault, including both idle liquidity and capital deployed in active yield strategies.

• Liabilities: include the value of the user's deposited assets & reward accrued.

The Health Index operates within four solvency bands that reflect the protocol’s financial condition:

Health Index (HI)	Status	Interpretation	Required Action
HI ≥ 1.0	Green	The protocol maintains a healthy surplus; reserves and strategy performance fully buffer market volatility.	No action required. Normal strategy operations continue.
0.95 ≤ HI < 0.99	Yellow	Early warning stage indicating slight liquidity stress or mild unrealized IL exposure.	Rebalancing to low IL exposure strategy
0.9≤ HI < 0.94	Orange	Heightened risk stage indicating notable liquidity stress or material unrealized IL exposure. The system’s buffer is being eroded and conditions require proactive mitigation.	Redirect 20% of strategy yield to the IL Reserve Fund and initiate de-risking measures to stabilize the Health Index
HI < 0.9	Red	Potential solvency concern; system entering stress conditions requiring capital protection.	Execute the withdrawal of all liquidity and close all strategy positions. Once capital has been fully recalled to the StrategyVault, activate and implement the Contingency Plan to stabilize the system and restore safe operating conditions

Prime Vaults maintains systemic health through a layered set of defense mechanisms spanning yield allocation, reserve buffers, and protocol-level interventions