> For the complete documentation index, see [llms.txt](https://documents.peakdefi.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://documents.peakdefi.com/for-asset-managers/how-to-for-asset-managers.../risk-threshold.md).

# Risk Threshold

To handle Managers who don't make any trades but still redeem their commissions every Cycle, there is a Risk Threshold implemented which disincentivizes managers from just sitting on the fence, blocking capital and redeeming their commissions. 

This Risk Threshold mechanism measures the amount of risk each manager has taken in a cycle, and only gives them the full commission amount if the risk they've taken exceeds a certain threshold. **If an Asset Manager doesn't make any trade at all he won't get any rewards as his / her Risk = 0.**

### Risk Threshold Formula

We measure the risk a manager has taken using the formula: 

$$
Risk = \sum\_{i\in Investments} Duration(i) \times Stake(i)
$$

 And the threshold we have chosen for each manager is:  

$$
Threshold = ReputationToken BalanceAtCycleStart \times (3 \text{ days})
$$

The proportion of the full commission that each manager will receive is: 

$$
min(1, \frac{Risk}{Threshold})
$$

### Example

Say at the beginning of a cycle Steven has 100 Reputation Token and Simon has 10 Reputation Token. 

Steven stakes 50 Reputation Token in a Trade for 7 days, Simon stakes 1 Reputation Token in a Trade for 15 days and 2 Reputation Token in another Trade for 5 days. 

**The risk Steven has taken is:**

$$
$50\times7=350$
$$

and his risk threshold is: 

$$
$100 \times 3 = 300$
$$

so he will receive the full commission amount. 

**The risk Simon has taken is:** 

$$
$1 \times 15 + 2 \times 5 = 25$
$$

and his risk threshold is: 

$$
$10 \times 3 = 30$
$$

 so he has not exceeded the risk threshold, and will receive 

$$
$\frac{25}{30} = 83.33%$
$$

83.33% of the full commission amount.