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Risks

Introduction#

youves is a DeFi platform with considerable complexity. With the youves DAO, the platform will be improved and strengthened on an ongoing basis. However, please be aware that by accessing and using the platform, its features, and its functionalities, you are assuming all associated risks. If you reside in the United States of America, you may not access the platform due to regulatory reasons.

Protocol Level Risks#

As the platform and its smart contracts are built on the Tezos blockchain, any potential flaws in the Tezos blockchain may impact the platform.

Infrastructure Risks#

Aside from the proper operation of the Tezos blockchain, smooth interaction with the platform relies on several factors, such as adequate internet access.

Economic Incentive Risks#

Great care has been put into the design and functioning of the platform. Nonetheless, it is possible that unanticipated circumstances or a combination of events may arise, leading to a scenario where the platform's incentive structure no longer sustains its continuous operation.

Market Risk#

Crypto markets are volatile and an exposure to these assets is inherently risky.

Using a vault to mint and sell youves tracker tokens allows for the build-up of leverage in the underlying collateral. This leverage amplifies both positive and negative market movements, increasing the potential risk and reward.

It's important to note that sudden, terrible, and significant changes in asset prices, known as "gap events" may occur, which could be too fast and too large for the platform's safety measures to respond to in time. As a result, these changes could have a considerable negative impact.

Oracle Risk#

Oracles act as a connection between the real world and smart contracts, allowing smart contracts to receive data from outside the blockchain. This includes any data input that is not purely generated on-chain and in particular price information into the blockchain world. However, oracles can be a potential single point of failure because if a smart contract receives incorrect and/or outdated information, it may not work properly. Detecting these errors is also challenging without additional data sources. Additionally, smart contracts are limited in computational power, hence the need to move more program computations off-chain and into the oracle, which only makes the issue worse. Hence, the careful design of oracles is of critical importance.

Risk of Holder Conversion Rights for Minters#

Minters run the risk that holders of youves tracker tokens use the holder conversion right (the convert feature) and ask them to provide collateral that is worth the fixed price of the conversion right multiplied by the number of youves tracker tokens the holder wants to convert. Just before exercising the conversion right, the market value of the youves tracker tokens is likely to be lower than what the value will be based on the fixed price of the conversion right. This means the chosen minter for the conversion will probably pay more for the youves tracker tokens than they are worth on the market.

Risk of Bailout / Minter Conversion Right for Stable Token Stakers#

Bailouts are no longer applicable with the v3 engines

Holders of youves tracker tokens that choose to stake them in the monitor conversion pool run the risk that a minter will exercise its conversion right. As a result, holders then have to deliver youves tracker tokens against collateral in the value of the minter's conversion right strike price times the number of the minter's youves tracker tokens. Right before exercising the conversion right, the youves tracker token will likely be worth more than the strike price, so the selected holder will probably receive less for its youves tracker tokens than the prevailing market price.

Governance Token Staker / Stability Mechanism Risk#

Holders of governance tokens that choose to stake their governance tokens in the staking pool run the risk of losing some or all of their staked governance tokens in case the stability mechanism gets activated.

Liquidation Risk#

Minters need to maintain adequate collateral levels in vaults, otherwise they run the risk of being partially or fully liquidated by a third party. In the event of liquidation, the third party receives a bonus from the excess collateral in the Minters' vault.

Underlying Reference Asset Risk#

Depending on their nature, reference assets of a youves tracker token may experience strong adverse price movements driven by regulatory action or, in case of crypto assets, because of software errors. This price move will be reproduced by the youves tracker token.

Tracking Risk#

The youves tracker token has a soft peg and it does not guarantee to track the target price exactly at all times. Even though there are mechanisms in place which aim to facilitate close tracking, the value may diverge above or below the target price for extended periods of time.

Smart Contract Risk#

Smart contracts used for the platform are inherently complex and may contain errors. Although there is a formal deployment process for the smart contracts in place including a professional review, a risk remains that certain code errors may go unnoticed.

User Risks#

There is a risk of user-initiated errors. The platform cannot reverse transactions.

Risk of Malicious Operators#

There is the risk of malicious hack attacks on the platform's smart contracts.

Furthermore, the platform works with economic incentives to encourage certain user behaviour. In theory, a malicious operator with access to large funds and no intention of making money could ignore the incentive structure of the platform and create unintended outcomes.

Governance Risk#

Currently there is a governance process in place, which is controlled by a group of keyholders that have an interest in the success of the platform. One key is held by ubinetic AG and six keys by six parties that are independent of ubinetic AG. Known and trusted tech teams in the Tezos ecosystem were selected as independent parties. This process is decentralised to an extent. However, it is less transparent and more centralised than a process using voting via governance tokens. It is planned to change to such a process with governance tokens, once a sufficiently large amount of YOU tokens have been claimed.