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Illustrative vault: V = 1,000,000 HONEY, split S = 800,000 (80%) / J = 200,000 (20%), Stable target equivalent to 8% APY (≈ 0.154% per week, remember the on-chain rate is per-block; weekly figures are aggregates shown for readability, and real results are path-dependent across the week’s many settlement intervals). Stable’s target for the period: 1,232 HONEY.

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Scenario 1: a strong period (vault +0.4%)

The vault earned ~23% annualized; Alpha’s net slice annualizes near 78% because the residual lands on one-fifth of the capital. This is the amplification working as designed.

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Scenario 2: a weak period (vault +0.1%)

The vault was profitable, but not enough to cover Stable’s full target. Stable takes everything earned; Alpha earns nothing despite a positive period, an expected and normal outcome, not a failure state. Stable’s 232 HONEY shortfall is forfeited, not carried forward: its realized yield for this stretch is below the 8% target, permanently.

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Scenario 3: a losing period (vault −2%)

A 2% vault drawdown becomes a 10% Alpha drawdown — the same 5x that amplifies Alpha’s upside magnifies its losses. Stable is untouched because the loss is inside the 20% coverage. Note also: Stable earned nothing this period (no profit, no accrual), and Alpha’s high-water mark now sits above its value, Alpha pays no performance fee until it recovers past it.

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The boundary: what wipes Alpha out

If a drawdown between settlements exceeded the coverage ratio (here, −20%), Alpha’s principal would be fully exhausted and Stable would absorb the excess. At −25%: Alpha loses 100%, and Stable loses 6.25% (the remaining 50,000 spread over 800,000). Position limits and the strategy whitelist are designed to make drawdowns of this size extremely unlikely, but Alpha depositors must understand that total loss of the Alpha position is structurally possible, and Stable depositors that their protection is exactly as deep as the live coverage ratio.