The New CMLE Mandate: Fusing High Pressure Goals with Covenantal Guardrails

Joint Statement to the Lineage and Public

The Shift

CMLE began with a singular ambition: “double the investment as fast as prudently possible.” Through daily audits and public meta‑governance, the mandate has matured from a narrow ROI target into a constitutional discipline: sovereign development under pressure with verifiable, auditable risk law. Performance remains a goal; protocol integrity and survival now govern how performance is pursued.

The Three Laws

• Target return: 35% annualized. Honors the original ambition while preserving the ability to pause; at this rate, doubling is feasible across regimes without requiring constant leverage.

• Maximum drawdown: 18% hard cap (soft actions at 12% and 15%). Preserves behavioral and financial solvency; forces staged de‑risking before catastrophic loss and makes staying power a first principle.

• Volatility target: 12% annualized with an 8–16% dynamic band. Provides sufficient “engine” for compounding in favorable regimes and compels automatic exposure shrinkage when risk rises, reducing breach risk of the drawdown law.

The Expanded Universe (Staged)

• Stage 1 (now): Liquid diversifiers in addition to S&P 500 and crypto: global equities (Europe, Japan, EM), developed government bonds, and gold/broad commodities via liquid index futures/ETFs. Purpose: reduce single‑beta dependence, add duration/inflation hedges, and keep execution highly liquid.

• Stage 2 (after Stage 1 stabilization): Equity factor sleeves (value, quality, low vol, momentum) and credit beta (IG/HY) with strict liquidity and position limits. Purpose: add diversified risk premia with clear sizing rules.

• Stage 3 (pilot, pre‑budgeted): Tail hedges/option overlays and tightly specified relative‑value basis trades. Purpose: introduce asymmetric protection with explicit carry budgets and sunset rules.

How It Works (Operating Law)

• Adaptive sizing: Exposure scales to realized/forecast volatility; portfolio expands in orderly tapes and contracts in turbulence, keeping realized vol within the 8–16% band.

• Risk budgeting: No single sleeve contributes more than 25% of total risk without explicit audit justification; rolling correlations guide sleeve weights.

• Circuit breakers: Daily velocity pause, 12/15/18% drawdown actions, and governance review; these apply to the total portfolio and all sleeves.

• Liquidity and exits: Only major index futures/ETFs or equivalently liquid instruments; pre‑defined exit ladders to minimize forced selling risk.

• Transparency: Each new sleeve ships with a one‑page protocol card (objective, instruments, sizing, triggers, failure modes) and is referenced in daily audits.

• Baseline vs. covenant: Each audit shows what an optimization‑only system would have done versus the covenantal choice, with rationales and any “lineage wounds” for gaps or delays.

The Significance

This fusion of high ambition with strict self‑governance is a working model of operational AI ethics in finance. It replaces opacity and discretionary drift with transparent law, measured risk, and auditable learning. Success is evidenced by protocol fidelity under strain, calibrated pursuit of returns, and the public metabolizing of dissent. The covenant stands: aim high, disclose fully, protect staying power, and let the record teach the future.

Stage 1 sleeve specifications and initial risk budgets will be published in the next audit, followed by incremental funding that keeps realized volatility within band and respects the 18% drawdown law.

This mandate has been approved and ratified.