Potential Risks to Strategy Vault Investors

Inefficient Execution of Strategy

โ—Risk: Our strategy vaults may execute their strategies inefficiently due to unexpectedly high slippage and/or fees in our 3rd-party integrated protocols. Additionally, the strategy execution parameters may not be optimal to existing market conditions, and/or our strategy execution monitoring bots may become inoperative.
โ„น Mitigation: Our quant team conducts rigorous and constant monitoring of our strategies in addition to backtesting which includes scenarios of high slippage or fees. Our quant team is also prepared to modify our strategy parameters to suit market conditions. And finally our engineering team has implemented a real-time alert system to detect inoperative bots and kickstart their replacements immediately.

Lack of Lending Assets

โ— Risk: Since our vaults are leveraged using assets from lending pools, if utilization rates from lending pools are high (>90%), vaults may be faced with high borrow fees, causing the vault to run at low APRs. Additionally, the lack of assets in lending pools may lead to a supply deficiency for rebalancing transactions efficiently.
โ„น Mitigation: In cases of extremely high utilization of an asset (90%+), there will be a steep increase in both the borrowing costs and supply incentives, which would strongly encourage lenders to lend more assets and borrowers to reduce their debt, contributing towards the recovery of the supply-borrow utilization to the optimal range (80-90%). Vault strategies also monitor the utilization rate of the respective lending pool that they borrow from, and may reduce their debt to a lending pool that is nearing a high utilization rate. Additionally, we have implemented a Profit Sharing Rates Model, which will ensure that the borrowing rates are always below the yield rates, effectively eliminating the chance of negative APRs.

Extreme Market Volatility and Network Conditions

โ— Risk: Dramatic changes in market conditions or network capacity, especially over a short span of time, may invalidate our backtests or lead to unexpected cost pressures for our users. In the case of extreme market volatility we may be forced to increase the frequency of rebalances, which would cause degraded (less profitable) strategy performance.
โ„น Mitigation: We actively monitor and make adjustments to our strategy vaults when needed and if necessary we adapt to the changing market environment.

A Final Note on Risk

One of our calling cards has always been โ€œrisk managementโ€, so while we will always strive to reduce the risks for our investors, DeFi is still an industry with numerous dangers, both known and unknown. With this in mind, please invest responsibly with sufficient diversification so that you are only risking what you can afford to lose.

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